Understanding Soft Credit Checks
When evaluating your financial health or applying for credit, your credit report is often accessed. However, not all access is equal; some reviews can impact your credit score, while others do not. A soft credit check, also known as a soft inquiry, falls into the latter category.
How Soft Credit Checks Work
Think of a soft credit check as a preliminary review of your creditworthiness. Companies use them to see if you meet certain criteria for things like pre-approved credit card offers or loan solicitations. They can access information such as your payment history and debt levels but do not use this for a specific lending decision. Unlike hard credit checks, which are triggered by a formal application for credit and can lower your score, soft checks are designed to provide information without penalty.
Who Conducts Soft Credit Checks?
Several entities commonly perform soft credit checks:
- You: Checking your own credit score or report through a credit monitoring service, your bank’s app, or directly from credit bureaus like Equifax, Experian, or TransUnion.
- Lenders: For pre-approved or pre-qualified credit offers mailed to you or displayed online.
- Employers: As part of a background check, especially for positions involving financial responsibility.
- Landlords: To assess your reliability when you apply to rent a property.
- Existing Lenders: For account reviews, which might lead to credit limit increases or new product offers.
- Identity Verification Services: To confirm your identity when opening accounts or making changes.
The Impact of Soft Credit Checks on Your Credit Score
The most significant aspect of soft credit checks is their complete lack of impact on your credit score. You can monitor your credit as often as you wish without concern for lowering your score. This encourages proactive credit management and allows businesses to market offers responsibly.
Real-World Examples
- Checking your score: Using your bank’s mobile app to view your credit score is a soft inquiry.
- Pre-approved offers: Receiving a credit card offer in the mail that says “Pre-Approved” is a result of a soft credit check. Applying for the card will require a hard check.
- Renting an apartment: A landlord performing a soft credit check with your permission to assess your tenant history.
Key Takeaways
- No Score Impact: Soft credit checks do not affect your credit score.
- Information Gathering: They are used for reviews, pre-approvals, and background checks.
- Encouraged Use: Regularly checking your own credit is a beneficial practice.
It’s crucial to distinguish soft checks from hard checks, which occur when you actively apply for new credit and can influence your credit score. By understanding the difference, you can better manage your credit health and avoid unnecessary score reductions.
Sources:
- Consumer Financial Protection Bureau: What is a credit inquiry?
- Experian: What’s the Difference Between a Hard and Soft Inquiry?
Continue learning about credit management in our guide to understanding your credit report.