Avoiding Hard Credit Checks

Loan Protection Tips: Avoiding Hard Credit Checks

Applying for finance is a big step, be it a car loan, personal loan, or business loan. But did you know that the way you apply can affect your credit score? Hard credit checks, sometimes called “hard enquiries,” can lower your score if too many appear in a short period. That’s why protecting your credit file is just as important as choosing the right loan.

In this guide, we’ll break down what hard credit checks are, how they differ from soft checks, and the steps you can take to avoid unnecessary marks on your credit report.

What is a hard credit check?

When you apply for a loan, the lender usually runs a hard credit check to review your financial history. This enquiry is recorded on your credit report and visible to other lenders.

Hard enquiries can lower your credit score slightly, and having too many in a short time can make it harder to get approved in the future. Lenders may see it as a sign you’re struggling financially or taking on too much debt.

Hard checks vs. soft checks

Knowing the difference between hard and soft credit checks helps you protect your score:

• Hard credit check – Happens when you apply for a loan, credit card, or sometimes even utilities. It impacts your credit score and stays on your file for up to 5 years in Australia.
• Soft credit check – Done when you check your own credit score or when lenders give you a pre-approval quote. Soft checks don’t affect your score and aren’t visible to other lenders.

Why protecting your credit file matters

Your credit file is like your financial reputation. A healthy credit score provides you with access to better loan terms, lower interest rates, and faster approvals. Damaging it with unnecessary hard checks can limit your options and increase borrowing costs.

For example, if you apply for five car loans within a week, all five lenders will leave hard enquiries. Even if you only accept one loan, the next time you apply for credit, lenders may view you as high-risk.

Loan protection tips to avoid unnecessary hard checks

Here are some practical ways to safeguard your credit file while still exploring your finance options:

1. Use loan pre-approvals wisely.

Many lenders in Australia offer pre-approvals or loan quotes that only require a soft check. This gives you an idea of your borrowing power and likely interest rate without hurting your score. Always confirm with the lender if it’s a soft check.

2. Compare loans through a finance broker.

Instead of applying with multiple lenders directly, work with a finance broker. Brokers can check your eligibility across a panel of lenders without triggering multiple hard enquiries. This reduces the risk of damaging your credit score while still finding the best deal.

3. Space out your applications.

If you need to apply with different lenders, avoid doing it all at once. Multiple applications within a short time frame can alarm lenders. Spacing them out shows you’re not desperately seeking credit.