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Do payday lenders do a soft credit check?

Why do payday lenders do a soft credit check?

Yes, payday lenders may actually do a credit check. Here's why. 

From time to time, customers come to us with questions. On occasion, a question comes around often enough that it just makes sense for a blog post.

Some of you have asked about credit checks. It’s a big topic, and it wouldn’t make sense to answer it with a small comment. Not given all the questions surrounding credit checks.

For example, you might be wondering if Net Pay Advance runs a credit check.

The answer? It’s half yes, half no. To understand why it’s not a textbook answer, I need to share some specifics — which I’m happy to do.

You may run a check of your credit report and see the list of inquiries made on your credit. Say you applied for a loan with Net Pay Advance. You may see an inquiry that says something like, “Inquiry completed by Clarity on behalf of Net Pay Advance.”

I bet you are confused.

I thought Net Pay Advance didn’t do credit checks? What happened to no-credit-check loans?

What you were told by payday loan agencies, including us, is that loans are offered with no credit check required. So why am I seeing an inquiry on my annual credit report?

Most payday lenders run a credit check. Yes, even Net Pay Advance will, from time to time, run a credit check. But it’s not a credit check like you may have heard of before. It’s called a soft credit check, and its function and purpose is much different than what you might be accustomed to.

It’s nothing to worry over, but it’s beneficial to understand how it works — and why it happens. Let’s get into it.

Quick programming note: In a minute, I’ll share more. But you have questions now and you deserve an answer. Yes, soft credit checks reveal information including your credit score. But Net Pay Advance isn’t concerned about your credit score. It might be visible in the pull, but your credit score isn’t collected by us and is not used in your loan decision. More on that in the next section. 

Why do I see a credit check from Net Pay Advance? 

Before we delve too far into this, we should be clear about one thing: We’re not misleading when we say that we offer no-credit-check loans.

See, our loans are offered with no credit check required. But if all that is true, why then might you see an inquiry made on behalf of Net Pay Advance? Wouldn’t that imply a credit check?

To offer you a loan, Net Pay Advance needs to verify your information. You know that information because it’s what we ask you for in your loan application. It’s common stuff, like your name, your age, your location, and confirmation that you have money coming in.

After you share with us that information, we need to verify it. You know, check and see that you are who you say you are and live where you say you live, to name a few.

Net Pay Advance verifies this information with the help of our friends at Clarity. Clarity is an extension of Experian, one of the three major credit bureaus. Clarity keeps record of the consumer information Net Pay Advance needs to verify your identity.

Occasionally, Clarity will need to pull from its parent company, Experian, to help fill in some missing information about you. To do this, it’ll have to make a soft credit check to pull this information. In this case, you will see on a credit report that Clarity made an inquiry on behalf of Net Pay Advance.

You see, what information Clarity doesn’t already have, it’ll pull from Experian. In that soft pull, it’ll show the things you’d find if you were to do a search of your own credit report. Think of lines of credit, loans, payment history, and yes, your credit score. But it’s not that information that Net Pay Advance is concerned about. Sure, your credit score will be visible, but it’s not taken into consideration in your loan decision. We’re more interested in the other details needed to verify that we’re lending with real and honest people.

So is it really a credit check? 

In the traditional sense? Not really.

You might see a credit inquiry made on behalf of Net Pay Advance, but it’s not really a credit check in the traditional sense. It’s an additional verification step that guarantees we’re lending to the right people.

Believe us, we tense up at the words credit check, too. But it’s important to remember that Net Pay Advance isn’t concerned about your credit score.

It’s all done in the name of accuracy, so we, as a lender, can steer clear of fraud attempts. This helps keep our costs down and give you the best price on a loan. It also helps keep you, the customer, safe, too.

Why does Net Pay Advance need to verify information with a credit check? 

We work with Clarity because we don’t want to hurt credit scores. Net Pay Advance values its customers and wants to better their lives — not worsen them.

Just like you, we like to keep a strong pulse-reading on our own credit scores. You might have heard that credit checks can knock your credit score down, and that may scare you. It’s OK if it does. It scares us, too.

But note that there are two different types of credit checks, and only one can ding your credit — hard credit checks. Through Clarity, it’s a soft credit check, not a hard credit check.

Normally, there are two major concerns with people and credit checks.

First is a fear that a credit check will reveal a poor credit score and lead to a declined loan application. That’s not the case with Net Pay Advance, because we’re not looking at your credit score. It doesn’t factor into our decision-making process with loan applications, simply put.

Second is the fear that a credit check will ding your credit score. That’s not happening, either. Remember, only hard credit pulls have an impact on your credit score. Through Clarity, it’s only a soft pull on your credit. Soft inquiries like this only include checks of your history by existing lenders — in this case, Experian — as part of the review process, and not a new inquiry.

In all, we just want to verify your information to ensure we lend with the right people. It helps us maintain a high level of accuracy, and, in turn, keep down the cost of a loan and lend to more people.

Why again is a soft credit check necessary? 

Like I said earlier, it’s not always necessary for Clarity to run the soft credit check. It depends on what information is already on file, and if they need to pull information from Experian to fill in the blanks.

Altogether, a soft pull is only used to authenticate and make sure you are who you say you are. Plus, there are no negative implications of running a soft credit check. It’s a review of what information is already on file, and not a request for new info.

Because it’s only a soft inquiry, there’s no negative hit to your credit score. Additionally, because it’s a soft inquiry, it’s only visible to you that this request was made. For instance, if you were to apply for a car loan, there would be no indication that there was a request made by Clarity on behalf of Net Pay Advance. Likewise, any other lender, even a home loan provider, wouldn’t know about your payday loan application with Net Pay Advance. Soft credit checks are cool in that way. 

You have nothing to worry about. From start to finish, there’s nothing reported to the credit bureaus that you took out a short-term payday loan.

What is a soft credit check? 

Financial institutions and creditors want to know how you are managing your credit. Other times, they might use a soft credit check to verify essential information, depending on the need.

It’s not your credit score that always matters, more so the general picture of your money coming in and money going out — plus any obligations you have to other loans or credit cards. Sometimes called a soft pull, this process is a simple review of your credit.

A soft pull shows what you would see if you were to look at your own credit report. You will see lines of credit, loans, payment history, and any collections accounts. Other basic information might be included, as well.

Oftentimes, these soft pulls may occur without your permission. If you’ve received a credit card offer in the mail saying you were pre-approved, the credit card issuer likely ran a soft credit pull on you. Because these are not in-depth checks, these inquiries do not impact your credit score.

How does a soft credit check differ from a hard credit check? 

You may not have heard of a soft credit check, or soft pull. It might be because they happen often, and most of the time without your knowledge.

Why is it, then, that people shiver at the words credit check? Well, that’s a whole different kind of check, known as a hard credit check, or hard pull.

Hard pulls are required when a lender needs to review your credit history before determining if you are eligible for a loan. These are necessary when applying for a mortgage, a credit card, or car loan, to name a few.

It’s important to note that a hard pull can only happen with your permission. You will be asked for your consent to complete the application.

Hard pulls only occur when you have applied with a lender who reviews your credit as part of their decision-making process. Important in the decision is your credit score, reported from at least one of the three major credit bureaus to assess whether you are credit-worthy.

Hard credit pulls can and most times will negatively affect your credit score. Usually, in most cases, a drop up to five points. Additionally, hard credit pulls will stay visible for two years. Comparatively, soft credit pulls are visible only to you and not others.

 

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What services use a soft credit check? 

Quite simply, a lot.

If you rent a car, apply for an apartment, or sign up for cable TV, you will be hit with a soft credit check, most likely. It’s common that this is part of the pre-qualification and pre-screening processes.

Most credit card issuers will also do soft pulls to see if you are pre-qualified for a credit card, that way it can send you relevant offers and get you to sign up.

Should you worry about a soft credit check? 

Soft credit checks are both normal and completely harmless.

Think for a second at the last time you checked your own credit report. Many of you use services like Credit Karma or Experian to monitor your credit. Those services do a soft credit check to spit out your report.

Similarly, a soft credit check initiated by others is the same process. These inquiries have no effect on your credit score and are never considered a factor in credit scoring models.

How so? Soft credit inquiries include checks of your credit history by your existing lenders as part of their portfolio review process and not a new inquiry.

Soft credit checks are commonplace and nothing to have fear over.

Net Pay Advance is a licensed direct payday loan provider, locally owned and operated in Wichita, Kansas. Our organization seeks to help individuals rediscover financial independence. At Net Pay Advance, our No. 1 priority is helping you, the customer, get access to the cash you need, quickly. To help you achieve financial success, we’re sharing new content weekly. Stay up on our posts by visiting the Net Pay Advance Facebook, Instagram and Twitter pages, and visit the blog for a full catalog of resources


Written by Evan Pflugradt

Evan is a gummy bear aficionado who does digital content marketing, in that order.

Friday, February 12, 2021
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