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Published November 3, 2022

Credit Checks: Understanding Soft and Hard Credit Enquiries

A credit check, also known as a credit enquiry, assesses your borrowing strength as a consumer and trustworthiness to lenders.

When you apply for a loan or a credit card, the lender will want to assess your borrowing strength as a consumer and your trustworthiness to lenders. To do this, the lender will request to check your credit report and score to get a sense of your borrowing history. That credit check will later show up on your credit report as a ‘credit enquiry’, which can have an impact on your credit score.

IN THIS GUIDE

What is a credit check? 

A credit check, also called a credit enquiry, is a review of your credit history. There are two types of credit checks: soft checks, which you perform yourself, and hard checks, which lenders perform. 

Soft vs hard credit check 

A soft credit check, or soft enquiry, happens when you check your own credit and does not negatively impact your credit score or report. Instead, checking your credit score and credit report is a smart financial practice as it allows you to confirm the accuracy of your personal and account information. Just like you review your savings and investments, making regular credit checks is an essential money management skill

A hard credit check, or hard enquiry, is performed by lenders and requires your consent. Hard enquiries are triggered when you apply for credit and become part of your credit report, which can affect your credit score.

Who has access to your credit report? 

Your credit report contains sensitive financial information protected under the Privacy Act. As such your credit report is only accessible to the credit providers you’ve applied for credit. This can include banks, finance companies, lenders, mortgage insurers, mobile phone companies, and utility providers. The lender must submit a request for your credit profile.

Third-party access is against the law, which means no real estate agent, landlord, employer or insurance company can access your credit report.

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Nerdy Tip: Make frequent soft credit enquiries. 

If you’re saving for a house, making a big purchase or considering a line of credit, it’s worth staying on top of your credit score. Check your credit score and report at least once a year, so you know your credit position. By taking this step before you apply for a loan, you’ll have time to improve your credit score if it’s low.

How does a hard enquiry affect your credit?

After a lender checks your credit report, a record of that hard enquiry will be listed in your credit file. This means it will be visible to anyone else who checks your credit in the future. 

Lenders can see the number of credit applications you’ve made and the type of credit you sought. They will use that information and other details in your credit report to determine your creditworthiness. 

It’s normal to have a few credit enquiries in your credit report, so their presence in your credit file won’t necessarily hurt your credit score. However, too many enquiries in a short span of time may suggest poor credit management, so it’s best to limit the number (and frequency) of credit applications. 

An exception to this guideline is pre-approval checks for home loans because someone seeking a home loan often needs to make multiple enquiries quickly. In contrast, frequently applying for credit cards and personal loans isn’t as necessary. Routine applications in these areas have a greater chance of negatively impacting your credit score.

How long do credit enquiries last on your credit report?

Hard enquiries stay on your report for five years, but they typically won’t impact your credit score that entire time.

Can you remove credit enquiries from your credit report?

You can’t remove any factually correct information from your credit report, so you’ll have to wait until five years before a hard enquiry falls off. 

However, you can remove incorrect, erroneous or illegitimate details — like a credit enquiry made without your permission. You can do it yourself by submitting a request to the relevant credit reporting agency or by seeking help from a credit repair service

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How to avoid too many hard enquiries 

You can’t always predict when you’ll need credit, but you can be strategic about how you interact with lenders. 

Limit the number (and frequency) of credit applications. Complete these applications sparingly and avoid applying for credit on impulse. 

Know your standing before applying for credit. It’s best to only apply for credit when you’re confident that you will likely be approved. To do this, familiarise yourself with eligibility requirements and check your credit score and report. 

Ensure your credit report is free from errors, such as mistakes or personal information that still needs to be updated. If you identify any errors in the report, contact the relevant credit provider to correct the personal information, which must be updated within 30 days. There’s no charge involved in this process. 

Weigh your options. Consider whether the credit you’re applying for is worth the potential ding to your credit score. If you have an excellent credit score, a few points may not be a big deal — especially if you won’t seek out a new form of credit again for a while. However, if you’re working on building up your credit, take the time to think twice. 

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About the Author

Amanda Smith

Amanda Smith is a freelance reporter, journalist, and cultural commentator. She covers culture + society, travel, LGBTQ+, human interest, and business. Her work has appeared in outlets such as The Guardian, Business Insider, VICE, News Corp, Singapore Airlines, Travel + Leisure, and Food & Wine. Amanda has written stories about planning for retirement for Business Insider, the connection between identity and money for Refinery 29, and the evolving cryptocurrency space for multiple verticals. A keen observer of humans, subcultures, societies and worlds, Amanda's words challenge perceptions and help bridge worldviews. Amanda splits her time between Adelaide, South Australia, and New York City.

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