Soft search vs hard search: why it matters for car finance

What are the differences between soft and hard credit searches – and how do they affect your car finance application? Let's find out.

When you go to buy a car on finance, lenders need to find out if you're eligible. This involves checking your credit score.

Your credit score is a three-digit number that tells lenders how likely you are to reliably pay back the money you borrow. In other words, it tells lenders whether you're a safe pair of hands.

There are two different kinds of searches, however, and they have different effects on your credit score.

The crucial difference is between a soft search and a hard search. A soft search doesn't affect your score, whereas a hard search can – especially if it's one of multiple searches in a short time.

So, how can you apply for car finance without affecting your credit score and making it harder for you to borrow money in future? Let's find out.

What are soft and hard searches?

The key difference between a soft credit search and a hard credit search is that soft searches don't affect your credit score and are invisible to lenders. Hard searches (also known as "hard checks"), however, can lower your score and are visible on your credit report.

A soft search is an eligibility check. Its purpose is to explore your options without committing to a credit path.

Hard searches, however, take place when you apply officially for a credit card, mortgage or other kind of finance. The purpose of a hard search is for a lender to assess your credit history and decide whether you're creditworthy.

Soft searches are risk-free. Hard searches, on the other hand, show that you're actively seeking credit. If too many appear on your credit report in quick succession, you appear to be a higher risk to lenders.

Hard searches stay on your credit file for around two years. However, they usually only affect your score for a year.



What impact can credit searches have on my car finance application?

Soft searches have no impact on your credit score. Hard searches can lower your score – especially if you make several in a short space of time.

This is because soft searches are invisible to lenders, whereas hard searches are recorded on your credit file for a couple of years.

Your best bet when looking for car finance is to avoid unnecessary hard searches. Use lenders or car finance brokers that offer soft-search eligibility checkers. These will show if you're likely to be approved without your credit score being affected.

Once you've chosen a deal, it's time to move on to a hard search. If rejected, wait a few months before applying again, as multiple applications in a short space of time can make you appear risky to lenders.

How can a car finance broker help?

A car finance broker can help you avoid hard searches by acting as a go-between. They use the lenders they're connected with to carry out soft searches. This helps assess your eligibility without firing off multiple, potentially damaging hard searches.

The advantages of using a car finance broker aren't limited to avoiding hard searches, however. They can also give you access to a broad panel of lenders. This gives them the edge over car dealers, who tend to work with just one or two finance providers.

Sometimes, people appear risky to lenders. This could be because they have "bad credit" (a poor credit history) or because they're self-employed or have an irregular income. In these instances, a car finance broker can help you access specialist lenders.

Car finance brokers can also help you by providing expert advice on the best types of finance available. The world of car finance is riddled with acronyms (HP, PCP and so on). A jargon-busting broker can be invaluable in helping you understand your options.

Finally, a car finance broker can save you time by handling applications, paperwork and negotiations. This means you don't have to handle multiple applications – applications which, as we've seen, could negatively affect your credit score.

Oh, and car finance brokers typically don't take a fee.



How is my credit score calculated?

Your credit score is calculated using information from your credit report. This information is used by lenders to decide whether you're likely to repay borrowed money in the future.

There are three main credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. These three agencies calculate credit scores in different ways.

All, however, will take into account:

• Your payment history
• Your credit usage
• The length of your credit history
• How often you apply for new credit accounts
• The range of credit accounts you hold
  
  

How can I improve my credit score?

If you have a poor credit score, don't despair. There are steps you can take to improve it before applying for car finance or another kind of finance.

The first step is to make sure you pay on time whenever possible. Missed payments are the number one red mark on your credit score that makes lenders consider you unreliable.

Other steps you can take include using less credit, registering on the electoral roll and spacing out credit applications.

A car finance broker can help with this last point by using eligibility checkers on your behalf. This means you get to learn your eligibility with lenders without carrying out hard searches that can negatively impact your credit score.

How we can help

Here at Zoomo, we help people with bad credit histories secure car finance. We do so with flexible financing options, quick and easy applications and zero-deposit options.



So, if you're looking for bad credit car finance in the North East, why not apply online today? It only takes a few minutes.