What is a Hard Credit Check? The Impact and Nuances

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When you apply for a loan or a credit card, lenders typically review your creditworthiness to evaluate the risk you pose as a borrower. This process is often referred to as a credit inquiry or a credit check. There are two types of credit checks, namely ‘soft’ and ‘hard’. 

This blog post will delve deeper into hard credit checks and their impact on your credit score.

Understanding Hard Credit Checks

A hard credit check, also known as a hard inquiry, occurs when a lender pulls your credit information to assess your creditworthiness before approving your application for a new line of credit, be it a loan or credit card. This inquiry may also occur when you request a credit limit increase or when an entity reviews your account for promotional offers.

How Hard Inquiries Affect Your Credit Score

Hard inquiries can have a negative impact on your credit score. Each hard inquiry can lower your score by a few points. Although this might seem minimal, multiple hard inquiries within a short time can add up and significantly affect your score. That’s why limiting the number of credit applications you make within a certain time frame is important.

However, certain scoring models, like VantageScore, consider multiple inquiries for the same type of credit (like an auto loan or a mortgage loan) within a specific period (usually 14-45 days) as a single inquiry. This feature, known as ‘rate shopping’, allows consumers to seek the best loan offer without damaging their credit score excessively.

How Long Do Hard Inquiries Stay On Your Credit Report?

Hard inquiries typically remain on your credit report for up to two years. Although the impact on your credit score lessens over time, the inquiry can still be seen by any future potential lender who reviews your credit report within this period. However, some credit scoring models only consider inquiries from the past 12 months.

Hard Credit Check vs Soft Credit Check

While hard inquiries are performed by financial institutions when you apply for a loan or credit, a soft inquiry occurs when you check your own credit or when a lender checks your credit for promotional purposes. Soft inquiries do not affect your credit score and don’t show up on your credit report to anyone but you.

Tips to Minimize the Impact of Hard Inquiries

  1. Apply for new credit sparingly. Each application results in a hard inquiry, negatively impacting your score.
  2. When shopping for loans, make sure to do it within a short time frame to minimize the impact of hard inquiries.
  3. Regularly check your credit report for any hard inquiries. If you spot one you did not authorize, contact the credit bureau first for more information. However, also consider contacting your lawyer, as it may be a sign of identity theft.

Remember, your credit behaviour, including payment history and credit utilization, has a greater impact on your credit score than hard inquiries. Thus, maintaining responsible credit behaviour is the key to a good credit score.

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*Representative example: Estimated repayments of a loan of R30 000 over 36 months at a maximum interest rate, including fees of 27.5% APR would be R1 232.82 per month. BetterLoans is an online loan broker and not a lender. Our service is free, and we work with NCR-licensed lenders in South Africa. Interest rates charged by lenders can start as low as 20% APR, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicant’s credit score and other factors at the lender’s discretion. Loan amount R500 – R350 000. Repayment terms can range from 3 – 72 months. The minimum APR is 5%, and the maximum APR is 60%.

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