When it comes to student loans, your credit score is very important. It affects everything from being approved to how much your interest rate will be if you require a cosigner. When you apply for a private student loan, the lender will first check your credit history. This is called “pulling your credit” or credit check.

Lenders perform credit checks to decide whether or not to approve your loan request. A good credit score will earn you quick approval with a lower rate of interest on the loan amount. A low credit score will do the opposite.

There are two types of credit checks or inquiries—soft credit checks and hard credit checks.

Soft Credit Checks

Soft credit checks are also called soft inquiries or soft pulls. Lenders do soft credit checks to see if you meet their loan requirements. Consider it stage one of taking out a loan.

Main features of soft credit checks:

• They are done as part of a pre-approval process—at this stage the lender only wants to see if you qualify for a loan
• Soft checks do not give lenders your full credit history—lenders only get to see your credit score
• They do not affect your credit score
• You may not know when a lender does a soft credit check
• They are not visible to other lenders

Applicants with good credit scores can get approved immediately. Applicants with low credit score may find it more difficult to get approved. Even if they do, they will most likely be charged higher interest rates.

Hard Credit Checks

Hard credit checks are also known as hard inquiries or hard pulls. These are done when you actually apply for a student loan. When they receive your loan application, lenders will do a hard credit check to make a lending decision. Your credit history will determine your interest rate and other terms and conditions.

Applicants with good credit scores benefit from lower rates. This is because a good credit score indicates that you are a responsible borrower and more likely to make timely payments.

Main features of hard credit checks:

• They are done to make lending decisions only after you apply for a student loan
• They show lenders details of your entire credit history
• You will know when a hard credit check is done
• They stay on your credit report and are visible to other lenders for up to two years
• Every hard check that is done can lower your overall credit score by 1 to 5 points

The major point of difference between hard credit and soft credit checks is the impact it has on your credit score. A soft credit check has no impact on your credit score. A hard credit check will impact your credit score negatively. Many consider it a necessary evil. But as long as you make your payments on time, you can build that score back up and show future lenders that you’re a responsible borrower.