Hard and soft credit checks are both tied to credit inquiries. But there’s a key difference between the two – hard credit checks are done when you apply for credit and result in what’s referred to as a hard inquiry. Soft credit checks are from credit screenings for pre-approved offers or when you check your own credit, and they generate soft inquiries.
Read on to learn more about credit inquiries and how they impact your credit score.
What Is a Credit Inquiry?
Credit inquiries are generated each time you or someone else requests access to your credit profile. They appear on your credit report as either hard or soft inquiries.
What is a Hard Inquiry?
Hard or voluntary inquiries result from applications for credit created on your behalf. They affect your credit score. They are also known as hard credit checks.
What is a Soft Inquiry?
Soft or involuntary inquiries appear on your credit report when someone reviews your credit profile for a preapproved offer or other reason unrelated to lending. These types of credit checks have no bearing on your credit score. It is also known as a soft pull, or a soft credit pull.
Soft Inquiries
Here’s a detailed breakdown of how soft inquiries work.
How Do Soft Inquiries Work?
Often, soft inquiries are generated without you actually knowing. That’s unless you check your own credit or agree to a prequalification from a creditor or lender for a credit card or loan product. If an insurance company or potential employer checks your credit report, this also generates a soft inquiry.
Can You See Soft Inquiries on Your Credit Report?
Soft inquiries are visible on your credit report. They appear in the section titled “Recent Inquiries” and can usually be found near the end of the document. However, only you can see soft inquiries as they are not included on reports accessed by lenders and creditors.
How Do Soft Inquiries Impact Your Credit Scores?
Soft inquiries do not impact your credit scores.
What Are The Benefits of a Soft Credit Check?
There are several benefits to a soft credit check. You can view potential loan and credit card offers without impacting your credit score and have an idea of your approval odds. Soft credit checks also allow you to view the anticipated cost of borrowing and decide if you should continue to shop around elsewhere.
Examples of Soft Credit Inquiries
Common soft inquiries include the following:
- You check your own credit.
- You apply for an apartment and the landlord reviews your credit.
- You complete a credit card, auto loan, personal loan or mortgage loan pre-qualification to get an idea of if you qualify for financing and with what terms.
- Existing creditors check your credit score to determine if you qualify for a credit limit increase or another card.
- Creditors and lenders access your credit profile to qualify you for preapproved credit offers.
- Auto insurance companies review your credit profile to gauge your level of risk before they assess premiums.
- Cell phone providers, cable companies and utility companies check your credit to determine if you are required to make a security deposit.
- A potential employer checks your credit report when evaluating your employment application.
Hard Inquiries
Here’s how hard inquiries work and impact your credit profile.
How Do Hard Inquiries Work?
Each time you apply for credit, the lender or creditor will pull your credit report. This results in a hard inquiry, also known as a hard credit pull.
How Do Hard Inquiries Impact Your Credit Scores?
Expect your credit score to drop a few points when a hard inquiry is generated. Hard inquiries remain on your credit report for up to two years, but they no longer impact your credit score after 12 months.
However, an exception applies when you shop for a mortgage or auto loan. You can apply with as many lenders as you’d like in a short period and only get one hit to your credit score. This is known as rate shopping.
How Can You Dispute Hard Credit Inquiries
Suppose you spot inaccurate or unauthorized hard credit inquiries on your credit report. In that case, you have a right to dispute them to have them removed. File a dispute by mail or visit the credit bureau’s online dispute centers to create your profile and submit your grievance electronically.
The review process could take up to 30 days, and submitting online may not be the best option as you’ll waive the right to a re-dispute if the major credit bureaus – Experian, TransUnion and Equifax – do not decide in your favor.
How Can You Minimize the Effects of Hard Credit Inquiries?
If possible, only apply for credit as needed to minimize the impact of hard credit inquiries on your score. Also, know that too many credit applications in a short period are sometimes perceived negatively by creditors and could cause you to get denied credit.
Examples of Hard Credit Inquiries
Common hard inquiries include the following:
- You apply for a credit card, personal loan, mortgage, auto loan or private student loan.
- You apply for in-house financing with a store retailer.
- You apply for a checking or savings account at a credit union.
FAQs About Hard and Soft Credit Inquiries
Both are requests to view your credit profile, but soft credit checks do not affect your credit score. Soft credit checks occur when you check your credit or a third-party screens your credit profile for a pre-approval offer. Hard credit checks are prompted by applications for credit.
As a rule of thumb, you only want to apply for credit as needed. There’s no magic number of inquiries deemed excessive. Still, the more you apply for credit, the lower your score and the riskier you apply to potential lenders and creditors.
A soft credit check on your credit report shows who viewed your credit report and when they initiated the request for access to your file.
Soft credit score checks do not indicate if you pose any potential risk to lenders and creditors. Furthermore, they are not directly related to a new application for credit and are omitted from the credit-scoring calculation. This means they do not affect your credit score.
Each hard credit check results in an inquiry that drops your score between two and five points. The impact is minimal and doesn’t last for a long time, but too many hits in a short span could have serious consequences for your credit score.
