Hard Credit Check vs. Soft Credit Check: What Doctors Need to Know

credit check
  • Hard credit checks are when a financial institution checks your credit before making a lending decision. These can negatively affect your credit score.
  • Soft credit checks are when a company reviews your credit score for things such as background checks or pre-approved products and do not affect your credit score.
  • There are special exceptions for “rate shopping,” so your credit score isn’t affected by looking for the best rate.

When searching for financial products, “credit check” is a phrase used often, but what does it mean and how does it affect doctors in need of financing?

Credit checks — also known as “credit inquiries” or “credit pulls” — refer to the action of reviewing your credit score and credit history, but it is important to understand the difference between hard and soft credit checks. 

What is a hard credit check? 

Hard inquiries take place when a financial institution, like a bank or credit card company, checks your credit before making a lending decision. If you are applying for a personal loan, mortgage or credit card, you will likely experience a hard credit inquiry. These require you to give written consent for a credit check.

How does a hard inquiry affect me? 

Hard credit checks can affect your credit score, typically lowering it by five or fewer points. The damage to your score is removed from your credit report after 24 months, but your score could improve before those two years. Many consumers won’t see their score affected by the credit check after one year.

Just one hard credit check shouldn’t significantly affect your approval for a loan or credit card, but hard credit inquiries can become problematic if done too frequently. Multiple checks in a short period of time can signal to the lender or credit card company that you are low on money or will be racking up a lot of debt in the future, which would make you a lending risk. 

One reason frequent hard credit checks can lower your credit score is that there is some data that suggests frequent hard credit checks are associated with an increased risk of not paying a financial institution back. According to FICO, individuals with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy than those with no inquiries on their reports.

Examples of hard credit checks

Common hard inquiries include:

  • Loan applications (mortgage, auto, student, personal, etc.)
  • Credit card applications
  • Requests for credit limit increases
  • Applications for lines of credit
  • New utility applications
  • Apartment rental applications
  • Collection agency skip tracing

What is a soft credit check?

Soft credit checks typically take place when an organization or individual reviews your credit score for a background check or pre-approved lending scenario. Unlike hard credit inquiries, institutions do not need your consent to perform these checks.

Do soft credit checks affect my credit score?

These inquiries will not affect your credit score and will only be seen on consumer disclosures. A consumer disclosure is the long version of your credit file and only you may request this document. It includes all inquiries on your file, including suppressed information.

Examples of soft credit checks

Common soft inquiries include: 

  • Personal credit checks
  • Pre-qualified credit card offers
  • Pre-qualified insurance quotes
  • Employment verification (i.e., background check)

Is checking my own credit score a hard or soft credit inquiry?

Checking your personal credit score is considered a soft credit check, so your credit score will not be affected by this action. In fact, checking your credit score and report frequently is encouraged. At minimum, you should check it once a year

Checking your credit information regularly will help ensure it is correct and there have been no breaches of your personal data. Watch out for signs of identity theft like incorrect information or errors like outdated information or payments wrongly reported as late.

Will shopping for the best rate affect my credit score?

Rate shopping is the exception to the negative effect multiple inquiries can have on your credit score. Looking for the best rate is financially responsible, and credit scoring models treat them as such. 

As long as the multiple inquiries take place within a 45-day window, FICO considers all auto loan, student loan and mortgage inquiries as one hard check. VantageScore works similarly — treating all inquiries within a 14-day window as one, regardless of type.

Bottom line

You will encounter credit checks throughout your life. Whether purchasing a house, opening a new credit card, or searching for a loan, these inquiries shouldn’t affect you and your credit score too much, as long as you understand how to search and rate shop strategically. 

At Panacea Financial, we understand that even a small dip in credit score can have a significant effect on doctors, especially those in training or early in practice. That is why we only use soft credit checks when you apply for a PRN Personal Loan or Student Loan Refinance.

For more information about credit scores, loans and more, visit our Resources page or check out one of our featured articles: 

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