Understanding Soft Credit Inquiries On Your Credit Report
When you apply for a loan or a new credit, you may inevitably come across several jargon like soft credit inquiry. But what exactly does this term mean? In this guide, we discuss different aspects of soft inquiry credit scores that you need to know. Read on!
What is a soft credit check or inquiry?
A soft credit inquiry is also sometimes referred to as a soft pull, and it is a type of credit inquiry that does not impact your credit score. When financial organisations do a soft credit check, they don’t actually evaluate your creditworthiness or do a full background check of your credit history and past credit behaviour.
Instead, they usually do a soft check credit score to know your current credit score and credit standing for offering pre-approved loans. Sometimes, soft credit inquiry may be part of an employment screening.
How does a soft credit check work, and what is its purpose?
As mentioned earlier, a soft check on your credit score does not have any effect on your credit score. It is more like a sneak peek into your credit profile, and it usually includes a review of your credit report information like recent credit inquiries, open credit accounts, payment history, etc.
Before extending any type of loan to you, the financial institutions or lenders may want to know how good or bad you are at managing your debts and repaying the amount. And the soft credit check is their way to know the risk associated with extending the loan to you.
Also, during a soft credit score check, the lenders also look into your credit utilisation ratio, i.e., the amount of credit you have used against the maximum credit limit available to you. A current lender may look into credit scores to offer you an extension of your credit limit or an overdraft facility.
Who can initiate a soft credit inquiry?
So, now that you know the answer to your ‘Do soft inquiries affect credit score’ query, let us look at who can initiate a soft credit inquiry.
- A potential employer may check your credit standing and credit score as part of their new recruit’s background verification process.
- A credit card company or a lending organisation that you have an existing relationship with or the one that you approached for a new loan or credit card may do a soft credit check.
- Financial organisations that want to offer you a pre-approved credit card or a loan offer.
Does soft credit inquiry reflect on a credit report?
When your employer or a financial organisation do a soft credit inquiry, it will show up in the credit report generated in the subsequent month of the inquiry. However, it will not reflect in the same way as the hard credit inquiry.
Typically, credit bureaus include soft credit inquiry under the consumer disclosure section and not under any credit applications. Additionally, when you check your credit score to get a better understanding of your current credit status, it will be considered a soft credit inquiry, and it may show on your credit report from one credit bureau.
This is because of the fact that when you check your credit score, you may request a soft credit check form only from the major credit bureaus. For example, if you check your credit score on CRIF, the information will reflect only in your CRIF credit report and not in CIBIL, Experian or Equifax reports.
Can soft credit inquiry lead to identity theft?
Soft credit checks do not directly lead to identity theft. However, it is a good practice to stay vigilant and review your credit report periodically, at least once every quarter, to know about any suspicious or unauthorised activity that could indicate potential identity theft.
While soft credit checks are harmless, it is essential to be aware of such inquiries that appear on your credit report, so they don’t negatively impact your overall credit health.
Benefits of soft credit inquiry?
One of the most significant benefits of a soft credit inquiry is that it has no impact on your credit score. Your credit report may contain dozens or even hundreds of such soft inquiries, but you need not worry about them and can be assured that your credit record will not suffer any negative consequences.
You can check your credit score frequently, as it may help you understand your exact credit standing and score. This, in turn, may help you make an informed borrowing decision and approach the right lender that has a minimum credit score requirement to match your current score.
Another major benefit of conducting a soft credit inquiry yourself is that you can review your credit report and identify any discrepancies or fraudulent activity. If you find any errors or fraudulent entries in the report, you can take timely steps to address the issue and have it corrected.
Conclusion
So, having a clear understanding of what is a soft inquiry on credit reports and its impact on credit scores is important for maintaining good financial health and overall credit standing. Also, by knowing the difference between soft credit inquiry and hard credit inquiry, you can make informed decisions with regard to applying for a new credit.
.