Private lenders offering unsecured short term loans, especially payday loans, often advertise a claim that they do not conduct any credit check. Many lenders emphasise the fact that they do not determine the eligibility of an applicant on the basis of their credit score, report or history. This may very well be true for several lenders. There are private independent lenders that indeed do not depend on credit score to ascertain eligibility. Some do not conduct any credit check at all. But, others tend to carry out a credit check to know the financial history of an applicant. The credit score, in such cases, may influence the chances of approval. In many cases, the credit history influences the terms of the loan.
Lenders have the discretion to increase or decrease the rate of interest and loan amount depending on the trustworthiness of an applicant. Lenders can also offer a shorter or longer repayment term depending on the credit history of an applicant. Some very poor credit scores may lead to rejection of the application. Whether or not a credit check is quintessential in the approval process of a lender, there are two types of searches a firm initiates and carries out. These two are soft and hard searches. As an applicant and potential borrower, you should know the difference between soft search and hard search on your credit score.
Soft Search vs. Hard Search
Soft search is a simpler process. A lender may quickly check the credit score of an applicant. The lender may not get into any other specific information. The entire credit history or even the latest annual report might not be studied or even considered. A soft search is usually limited to checking the score and nothing else. Some lenders may extend the soft search and find out how many loans are pending or if the applicant has no debt right now. Such a soft search does not leave any footprint. This means there is no record of a lender carrying out such a search. No one gets to know that the search has been conducted. Credit rating agencies do not pay much heed to such soft searches.
Hard search is a more elaborate process. This is basically a comprehensive study of the credit history of an applicant. A lender will certainly check the credit score and then dive deep into the annual report. The recent credit history of an applicant spanning several years is studied, including assessment of the types of loans taken, repaid or not, if there was any default, whether or not a particular loan was settled and other available records. This hard search leaves a footprint. The credit reporting agencies make a note of these hard searches. All other lenders who access the credit history of a person will get to know of the hard search that has been carried out. A hard search effectively means that an applicant has applied for a loan and a lender has delved into their credit file.