Credit Check
Credit Check is a process where a creditor or a lender looks at the information from your credit score, in order to understand your financial behavior. They do not need your permission to check your credit report as this generally takes place when you have applied for a loan from a lender.
Your credit report is a summary of your credit history, in which all the past credit information such as your earlier loan repayments, your current balance of credits, etc. are recorded.
Types of Credit Check
1. Hard credit checks In this kind of credit check, the lender examines your credit report and based on that information they take a decision whether to extend their offer for credit to you. Generally, banks or any other financing companies run a hard credit check on every individual, who has applied for a loan.
2. Soft credit check This kind of credit checks are done by lenders to decide how good your application would be without examining your credit history. The soft searches do not affect your credit score since these are not visible to other lenders or companies.
Importance of Soft Credit Check
When you are applying for a lot of loans in a short span of time and there has been a number of hard credit checks, it tends to lower your credit score as you will start looking risky to a potential lender. However, in case of a soft credit check, it is not true as there is no limit on how many times you had soft credit checks, it will leave no traces on your credit report.
How Can You Avoid Hard Credit Check?
There are a few ways by which you can avoid a credit check such as:
- Do not apply for a loan if you know you will not be able to qualify for that.
- You can apply to lenders that dont run a hard credit check like installment loans.
- Educate yourself to make good credit decisions.