Hard vs Soft Credit Checks: What's the Difference?

If you're applying for a loan, you've probably heard the terms hard credit check and soft credit check. While they may sound similar, they can have different purposes and implications.

Understanding the difference can help you make more informed decisions when comparing lenders and preparing your next loan application. It can also reduce unnecessary concern about checking your own credit information.

The good news is that not every credit check affects your credit file, and knowing when each type of enquiry occurs can help you borrow more confidently.

What Is a Credit Check?

A credit check is when your credit information is reviewed to help assess your financial history.

Lenders, credit providers and credit reporting bodies may perform credit checks for different reasons, such as:

• Assessing a loan application
• Reviewing an application for a credit card
• Verifying your identity
• Providing you with your own credit report

The type of credit check performed depends on the purpose of the enquiry. If you're unfamiliar with the information lenders review, our guide on what a credit report is explains what's included and why it matters.

What Is a Hard Credit Check?

A hard credit check, sometimes called a hard enquiry, usually occurs when you apply for a credit product, such as:

• A car loan
• A home loan
• A personal loan
• A credit card

Because you're requesting new credit, the lender reviews your credit information as part of its assessment process.

Hard credit enquiries are generally recorded on your credit report and may be visible to other lenders for a period of time.

However, a single hard enquiry isn't usually a cause for concern. Most lenders expect to see legitimate credit applications from time to time.

What Is a Soft Credit Check?

A soft credit check is generally used for enquiries that don't involve a formal application for new credit.

Examples include:

• Checking your own credit report
• Pre-screening by some lenders
• Identity verification
• Some pre-approval assessments

Soft credit checks are generally not recorded in a way that affects future lending decisions.

This means you can check your own credit report without worrying that it will lower your credit score.

"Checking your own credit report is a smart financial habit, not something to avoid."

Can Hard Credit Checks Affect Your Credit Score?

A single hard credit enquiry is unlikely to have a significant impact.

However, making numerous credit applications within a short period may raise questions for some lenders because it can suggest you're actively seeking credit from multiple providers.

That's why it's often better to compare your options before submitting several loan applications. Working with a finance broker can help you identify lenders that may suit your circumstances without applying indiscriminately.

How Can You Reduce Unnecessary Hard Credit Checks?

Planning can help minimise unnecessary enquiries.

Some practical tips include:

• Check your credit report before applying.
• Compare loan options before submitting applications.
• Only apply for finance when you're ready.
• Ensure your application is complete.
• Speak with a finance broker before applying to multiple lenders.

If you're preparing for a loan application, our guide on improving your credit score before applying for a loan includes additional ways to strengthen your borrowing position.

Do All Loan Applications Require a Hard Credit Check?

In many cases, yes. When you're formally applying for finance, lenders generally need to review your credit history as part of their responsible lending obligations.

However, some lenders may perform an initial eligibility assessment before completing a formal credit enquiry. If you're unsure what type of assessment will occur, it's worth asking the lender before you apply.

Should You Worry About Credit Checks?

Not usually. Credit checks are a normal part of the lending process.

Rather than worrying about every enquiry, focus on:

• Maintaining a healthy credit history
• Paying bills on time
• Limiting unnecessary credit applications
• Borrowing responsibly

Understanding what credit score you need for a car loan can also help you prepare before applying for finance.

FAQs

What is the difference between a hard and soft credit check?

A hard credit check is usually performed when you formally apply for credit and is generally recorded on your credit report. A soft credit check is used for purposes such as checking your own credit report and generally doesn't affect your credit file.

Does checking my own credit report lower my credit score?

No. Checking your own credit report is considered a soft credit enquiry and generally does not affect your credit score.

How many hard credit checks are too many?

There isn't a fixed number, but making multiple credit applications within a short period may concern some lenders because it can indicate you're seeking credit from several providers.

Do all lenders perform hard credit checks?

Most lenders perform a hard credit check before approving a loan. Some may also carry out an initial eligibility assessment before completing a formal credit enquiry.

Can a finance broker help reduce unnecessary credit enquiries?

Yes. A finance broker can help identify lenders that may suit your circumstances, reducing the need to submit multiple applications.