What Is the Difference between Hard vs Soft Credit Checks?

Understanding credit pulls is essential for managing your Credit Bureau Singapore (CBS) score and making informed financial decisions in Singapore. Whether applying for credit cards, loans, or mortgages, knowing the difference between soft and hard credit checks is vital to preserving your credit health and making sound financial choices.

It's a formal review of your credit history by a lender when you apply for credit. Unlike soft checks, hard checks are recorded on your credit report and can temporarily impact your credit score, as they indicate you're seeking new credit.

Hard credit checks are used when you apply for credit. Scenarios include: personal loans, mortgages, or credit cards through local banks like OCBC or Citibank, where lenders assess your creditworthiness; car loan applications, where financing institutions review your credit history to determine loan eligibility; and any formal credit application requiring a thorough assessment of your financial standing. These checks allow lenders to evaluate your risk profile and determine if you are a reliable borrower.

Yes, hard credit checks can have a minor, temporary effect on your CBS score, which reflects your creditworthiness in Singapore. Applying for multiple credit products in a short period can lower your score, making it harder to get approved for new credit, even if you have excellent credit. This is because lenders may perceive multiple applications as a sign of financial distress.

The effect of a single hard credit check on your CBS score is usually minimal and temporary. However, numerous hard checks within a short timeframe (e.g., applying for multiple loans or credit cards) can negatively impact your score. This signals potential financial instability or desperation to lenders, hindering future approvals and raising red flags about your financial management.

Hard checks are necessary for credit applications. Lenders must assess your creditworthiness to determine your ability to repay. Without hard checks, a risk assessment would be impossible, and lenders would be unable to make informed decisions about extending credit.

It's a review of your credit history that doesn't impact your score. This includes checking your own credit, requesting a free credit report from Credit Bureau Singapore, or pre-qualification checks. Soft checks are used for informational purposes and don't signal credit applications to lenders.

Soft credit checks are used for various purposes, including:

• Credit card pre-qualification, which allows banks to assess your likelihood of approval before you submit a formal application, without affecting your credit score.

• Promotional offer checks by banks (e.g., cashback credit cards), where banks assess potential customer eligibility without impacting their credit scores

• Loan eligibility checks before formal applications that allow individuals to gauge their chances of approval. These checks help both consumers and lenders make informed decisions without affecting credit scores.

>> LEARN: Free Credit Score Check in Singapore

Soft credit checks do not impact your CBS score. Financial institutions use them for pre-screening credit card applications or checking loan eligibility without affecting your credit scores, answering the question, do credit checks affect credit score. This allows for preliminary assessments without any negative impact on your credit profile.

Minimising the impact of hard credit checks is crucial for maintaining a healthy credit score. Here are some strategies to consider:

• Limit the number of credit applications you submit in a short period. Spreading out your applications over time prevents multiple hard checks from accumulating, which can negatively impact your credit score.

• Apply for products only after ensuring you meet the eligibility criteria to reduce the number of rejected applications. Rejected applications often result in hard credit checks, so confirming your eligibility beforehand can prevent unnecessary inquiries.

• Use credit pre-qualification tools by local banks to pre-screen credit card or loan eligibility through soft credit checks before formally applying. This allows you to assess your chances of approval without triggering a hard inquiry, preserving your credit score.

Understanding these types of credit checks in Singapore helps maintain healthy credit scores and make better financial decisions, especially when applying for loans or credit cards. It also protects against identity theft, as regular monitoring allows you to detect unauthorised credit applications.

Here are some tips to improve your credit score:

• Pay bills on time: Consistent on-time payments are crucial for a healthy credit score.

• Keep credit utilisation low: Avoid maxing out credit cards and keep balances below 30% of your limit.

• Maintain a long credit history: Older accounts demonstrate responsible credit management.

• Diversify credit types: Show responsible use of various credit types, such as credit cards and loans.

• Correct errors: Regularly review your credit report for inaccuracies and dispute any errors promptly.