The credit search process helps lenders decide whether to approve your car finance application and on what terms.
Two types of credit searches
There are two main types of credit searches: soft and hard.
Soft credit search
This type of search is like a gentle inquiry. It allows lenders to check your credit history without leaving a visible mark on your credit file. Soft searches are typically carried out during the pre-approval stage. The beauty of this approach is that other lenders won’t know it’s happened, and it won’t affect your credit score.
Hard credit search
A hard search, on the other hand, is more thorough. This happens when you’re seriously applying for car finance. It involves a detailed review of your credit history and leaves a footprint on your credit file. Multiple hard searches in a short period can make lenders view you as a higher risk, so it’s best to limit them.
Why credit searches matter
Credit searches serve as a safeguard for both you and the lender. By reviewing your financial history, lenders can ensure the loan is suitable for your circumstances. It also helps them prevent over-lending, which could lead to financial difficulties for you.
For you, a credit search offers transparency. It provides an opportunity to see what lenders might consider when making their decisions. If there are errors or outdated information in your credit report, you can take steps to correct them before applying.
How to prepare for a credit search
Preparation can make all the difference when it comes to securing car finance. Here are some tips:
Check your credit report
Before applying, request a copy of your credit report from agencies. This allows you to spot any inaccuracies and improve your credit score if needed.
Improve your credit score
To improve your credit score over time, pay off outstanding debts, register on the electoral roll, and avoid missed payments.
Avoid unnecessary applications
Every hard search leaves a mark. To avoid lowering your score, research lenders thoroughly and only apply when you feel confident about your chances.
Final notes
Understanding what a credit search means and how it works can help you navigate the car finance process with confidence. Whether it’s a soft search during pre-approval or a hard search for a formal application, being prepared ensures you put your best financial foot forward.
