Before you apply for credit, you can ask us what kind of credit checks we will make.
We get asked this question a lot. It’s important to remember that there are more than one type of credit check: hard AND soft. Understanding how each works can help you make better financial choices when it comes to applying for a vehicle.
Around 10 per cent of your overall score is based on inquiries made to your file. Hard and soft checks appear on your credit file, but only hard credit checks will immediately affect your credit score, potentially lowering your score by five points.
A hard credit inquiry occurs when you apply credit like an auto loan or a credit card.
Hard credit checks affect your score because credit bureaus assume that if you’re applying for more credit, you might be at a greater risk of not paying your debt back. All lenders need to see how responsible you are with your finances, so they must pull your file to view your credit history before they can approve you for any type of a loan.
Credit scoring models usually count auto loan inquiries made over a 45-day period as only one inquiry. This method of applying for credit within a specific time frame, known as “bunching”, will show creditors that you’re shopping smart and not applying for loans irresponsibly. It is crucial to apply for credit only when you absolutely need it so that when lenders do a hard check (which they have to do before they can approve you) they see a report that reflects good financial sense.
A high number of hard inquiries on your file is immediately associated with an elevated risk. This is why it is important to trust a company before you submit your information to them. Some credit companies will sell your information to third-party partners, which can easily cause several credit checks to appear on your file. Here at Downey Credit Solutions, we don’t sell your information so only our highly trained and passionate finance team will work on your file.
Soft credit inquiries happen when you pull your own credit. Your score does not take a hit. Soft credit inquiries are used for informational purposes such as when an employer does a background check on your financial health, or if a lender sends you a pre-approval offer, or when your financial institution checks your credit. Soft credit checks do not impact your score because you’re not technically applying for a loan. Often, soft credit checks happen without your request, which means you’re never penalized when it comes to soft credit inquiries.
Before you apply for credit, always ask the lender what kind of credit check they make. This might be the factor that will help you decide whether you want to proceed or not, and it will ensure that you avoid negative credit surprises.
When you request a copy of your credit report, you can see all the credit inquiries made. If you ever see a hard check that you don’t recognize, contact your bank as soon as possible.