Credit checks come in two forms: soft and hard. Understanding how a hard credit check works and how it affects your financial profile is important before proceeding with an application.
What is a hard credit check?
A hard credit check happens when a lender conducts a full review of your credit report to assess your ability to manage repayments. This type of check is more detailed than a soft search and is typically required before finalising a finance agreement.
The lender will look at your borrowing history, outstanding debts, repayment habits, and any missed or late payments. This information helps them decide whether to approve your application and what interest rate to offer.
Unlike a soft check, which does not leave a trace visible to other lenders, a hard check is recorded on your credit report. Multiple hard searches within a short period may suggest to lenders that you are experiencing financial difficulties, which can make it harder to get approved for credit in the future.
When does a hard credit check take place?
A hard check is usually carried out when you submit a full application for car finance. This can happen with different types of agreements, including personal loans, hire purchase, and personal contract purchase. Before reaching this stage, some lenders may offer an initial eligibility check using a soft search, which does not impact your credit score.
If you apply for car finance through multiple lenders, each one will likely perform its own hard check. This could result in several entries on your credit file, which may lower your credit score temporarily. It’s usually recommended to compare finance options carefully before making applications to avoid unnecessary checks.
How does a hard credit check impact your credit score?
A single hard check typically has a small impact on your credit score, but multiple checks in a short space of time can have a greater effect. Lenders may view frequent applications as a sign of financial instability. If you are declined finance by one provider, it’s best to take a step back and review your credit history before applying elsewhere.
The effect of a hard check on your credit score is temporary. If you maintain good financial habits, such as making repayments on time and keeping debt levels manageable, your score can recover over time.
A hard credit check is a crucial part of the car finance process, as it allows lenders to assess whether you can afford the agreement. While it can have a short-term impact on your credit score, responsible borrowing and financial planning can help you minimise any negative effects. Taking time to review your credit report and choosing lenders carefully can improve your chances of securing finance on favourable terms.
