Every time you apply for a loan or a new credit card, a ‘check’ is performed on your file. But did you know that some of these searches are invisible to lenders, while others can actively lower your credit score?
Understanding the difference between soft and hard credit checks is vital for anyone looking to manage their financial health. It’s particularly important if you’re a new business or looking to grow.
In this article, we’ll explain what soft and hard credit checks are, how they work, and the key differences.
What is a credit check?
A credit check is when a lender looks at your business credit report to assess how reliable you are as a borrower. They’ll check things like your payment history, outstanding debts, and any past financial issues.
Your credit report helps lenders decide whether to approve your application and what interest rate to offer. A strong credit score can make it easier to get finance and secure better terms.
Why do lenders perform credit checks?
Lenders use credit checks to manage risk. They want to make sure you can repay what you borrow, and by reviewing your credit history, they can predict how likely you are to miss payments or default on a loan.
For businesses, credit checks also help lenders understand your financial stability. They’ll look at factors like your credit history, payment behaviour, trading history, credit utilisation, and any existing debts. They’ll also check public records for things like County Court Judgments (CCJs) or bankruptcies.
How can a business check its credit score?
You can check your business credit score using Tide’s Credit Score Insights (which gives you insights into what impacts your score and how to improve it) or through credit reference agencies like Experian and Equifax. Some offer free trials or basic reports, while others charge for full access.
Reviewing your credit report regularly helps you spot errors, track improvements, and understand what lenders see when they check your credit. It’s also a good way to see how your financial decisions affect your score over time.
Did you know? You can also run a credit check on other businesses to understand the financial health of potential partners before committing to important deals. This typically involves a soft credit check, which – as well as being invisible to other businesses – won’t impact your or their credit score.
What is a soft credit check?
A soft credit check is an initial look at your credit report that doesn’t appear in a way other lenders can see. Lenders use them to give you a quick idea of whether you’d qualify for finance, allowing you to check your eligibility without affecting your credit score.
Soft checks can also be used for background checks, like when you check your own credit report or a lender pre-approves you for an offer. And because they don’t impact your credit score, you can have as many as you like.
When is a soft credit check used?
Soft credit checks happen in a few common scenarios:
✔️ When you check your own credit score
✔️ When a lender gives you a quote or pre-approval for personal or business finance
✔️ When you use eligibility checkers to compare finance options
A soft credit check is useful because it lets you compare different finance options without hurting your credit score. It’s also a great way of seeing what kind of deals you might be eligible for before you commit to a full application.
What does a soft credit check show?
A soft check gives lenders a high-level overview of your creditworthiness. They’ll see:
✔️ Your basic personal or business details (eg name, address, registration number if applicable)
✔️ A summary of your credit score or credit history
✔️ Any major red flags (eg bankruptcies or CCJs)
But they won’t see a full breakdown of your financial history. So while a soft check gives a good indication of your credit health, it’s not as detailed as a hard check.
How does a soft credit check affect your credit score?
Soft credit checks don’t affect your credit score. They’re only visible to you on your own report, so they won’t impact any future applications.
This makes them ideal for comparing finance options or checking your eligibility before committing to a full application. And because they don’t leave a mark that others can see, you can use them as often as you like to monitor your credit health.
How should a business prepare for a soft credit check?
You don’t need to do much to prepare for a soft check, but it’s still good practice to:
✔️ Review your credit report for errors
✔️ Make sure your business details are up to date
✔️ Pay any outstanding bills on time to improve your score
Since soft checks don’t affect your credit, you can use them to test your eligibility for different finance options. And if you spot any issues on your report, you can fix them before applying for finance.
What is a hard credit check?
A hard credit check is a full review of your credit report. Lenders perform them when you formally apply for credit or finance, and it leaves a visible mark on your credit report.
Hard checks could temporarily lower your credit score, particularly if you have multiple checks in a short period. But they’re a necessary part of the application process for most types of finance.
When is a hard credit check used?
Hard credit checks happen when you apply for:
✔️ Business loans or overdrafts
✔️ Business credit cards or a revolving credit facility
✔️ Commercial mortgages or property finance
They’re a standard part of the application process for most types of finance. Lenders use them to confirm your creditworthiness and make a final decision on your application.
What does a hard credit check show?
A hard check gives lenders a detailed view of your financial history. They’ll see:
✔️ Your full payment history (including missed or late payments)
✔️ Outstanding debts and credit limits
✔️ Any past bankruptcies, CCJs, or IVAs
✔️ How often you’ve applied for credit in the past
This gives them a clear picture of your financial health and helps them make a final decision on your application.
How does a hard credit check affect your credit score?
Each hard credit check can lower your score by a few points. And too many checks in a short time can make you look like you’re struggling to raise finance, making you appear more risky to lenders.
However, the impact is usually temporary. Your score should recover within a few months if you manage your credit responsibly. And most lenders only look at checks from the past 6-12 months when assessing your application.
How can you prepare your business for a hard credit check?
To improve your chances of approval:
✔️ Check your credit report for errors and dispute any inaccuracies
✔️ Pay down existing debts to lower your credit utilisation (the percentage of your available credit that you're currently using)
✔️ Avoid applying for multiple types of finance at once
If you’re not sure whether you’ll qualify, you can first check your eligibility, which involves only a soft credit check. Try to only apply for finance you really need, since this will limit the impact on your score.
What’s the difference between soft and hard credit checks?
Put simply, soft credit checks provide a high-level overview of your creditworthiness while hard checks provide a much more detailed breakdown.
| Soft credit check | Hard credit check |
|---|
Can it affect your credit score? | | Yes, it can temporarily lower your score by a few points |
Is it visible to other lenders? | | Yes, it’s visible for up to two years |
| Checking your own score, getting quotes, and pre-approvals | Formal finance applications like loans and credit cards |
Does it require your permission? | | Yes, lenders need your consent |
How detailed is the information? | A basic overview of your credit health | A full breakdown of your financial and credit history |
How often can you have one? | | Only when you apply for finance |
| | Yes, if you don’t meet the lender’s criteria |
Wrapping up
Credit checks are a necessary part of applying for business finance. But understanding the difference between soft and hard checks can help you manage your credit score and improve your chances of approval.
Here’s a reminder of the key points:
Soft credit checks don’t affect your credit score and aren’t visible to other lenders
Hard credit checks leave a mark on your credit file and can temporarily lower your score
Use soft checks to compare finance options without damaging your credit
Prepare for hard checks by reviewing your credit report and paying down any debts
Only apply for finance you really need to minimise the number of hard checks
Thinking of applying for a business loan? Check your eligibility in minutes through Tide, without affecting your credit score. You’ll be able to compare business loans and other finance options from our panel of lenders to help you achieve your business goals.
Protect your credit score and improve your chances of getting approved by checking your creditworthiness using Tide’s Credit Score Insights first. It’s a simple and affordable way to check your score, learn what factors may impact it, and how you could improve it.
FAQs
Can I fail a soft credit check?
No, you can’t fail a soft credit check. It’s just a quick look at your credit report to see if you meet basic eligibility criteria. Even if a lender decides not to offer you finance after a soft check, it won’t affect your credit score or be visible to other lenders. So there’s no risk in using them to check your eligibility.
Can I avoid a hard credit check?
In most cases, no. Hard credit checks are a standard part of applying for finance, and lenders use them to make a final decision. But you can minimise their impact by only applying for finance you’re likely to qualify for, using soft checks first to gauge your eligibility, and avoiding applying for multiple types of finance at once.
How long will a hard credit check stay on my credit record?
Hard credit checks usually stay on your credit report for up to two years, but their impact on your score reduces over time. Most lenders only look at checks from the past 12 months when assessing your application – so while they’ll stay on your report for a while, they won’t affect your score forever.
Can I get a hard credit check removed from my record?
No, you generally can’t remove a hard credit check from your report unless it was done without your permission or recorded in error. If you spot an unauthorised or incorrect hard check, you can dispute it with the credit reference agency.
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