What is the difference between soft and hard credit inquiries?
Those who pay close attention to their credit scores may have heard the term "credit pull." Also known as a "credit inquiry," this action is common and can affect your credit score in different ways. See the difference in pull types and why you'll want to keep close tabs on when and how they happen.
What is a hard inquiry?
A hard pull, or hard inquiry, is most often used when a lender or creditor is assessing you for credit risk. They want to know if you're creditworthy, and they can find this out by accessing the details of your credit history or score.
A hard pull can lower your score a little, but the amount of pulls done in a period of time can do even more damage if not spaced out far enough. Hard inquiries generally stay on your credit reports for up to two years, so consider limiting them if you want to keep your score up.
Who does a hard pull?
Since a hard pull is most often used to tell if you're a good lending risk, they are used by an entity considering you for a loan or credit card. Banks, credit unions, and credit card companies rely on hard inquiries to make sound lending decisions. They'll look at the information listed on your report to see if you are likely to pay back the money. These decisions affect all kinds of loans, including mortgages, private student loans, and car loans.
Applying for many loans over time almost definitely brings your score down. Each pull can have an effect, depending on the timing. A flurry of credit pulls over the course of a year, for example, may signal to a bank that you are desperate for money—and not a solid credit risk. Make each pull an intentional action.
If you rent, your landlord can also run a hard pull, but they can sometimes just run a soft pull. The application will often ask permission to do a background or credit check, and they can’t do one without your consent. If you’re not sure which one they will run, ask them.
What is a soft inquiry?
Another type of credit inquiry is a soft inquiry, or soft pull. This gives a lender or service provider access to your credit report with the same details you would see if you asked for one. Things like late payments, loan limits, credit card debt, and any collection actions will all show up.
It’s not the same type of inquiry as a hard pull, so it won’t negatively affect your credit score. It also means that they may not tell you they are doing one. When you sign up to do business with a creditor, however, you’ve given consent for them to do this. For companies you don’t do business with, an “opt-out” is required to keep them from doing soft credit checks. since they don’t need your permission to pull it.
Who does a soft pull?
Anyone who does business with you may perform soft credit inquiries on your credit to determine if they want to continue serving you. This includes insurance companies as well as employers, who may want proof that you’re responsible and pay your bills on time.
Credit card companies will also make soft inquiries for a few reasons:
- Companies that don’t already do business with you may use inquiries to pre-qualify you and send you relevant offers for new credit
- Your current issuers may use it to see if you’re eligible for a different rate or a higher credit limit
Examples of hard and soft inquiries
These are common cases where a hard inquiry may be needed:
- Applying for a new credit card
- Applying for a new loan
- Filling out a job application where you’re asked for your Social Security Number
- Renting an apartment where you’re asked about your credit details
These are common cases of soft inquiries:
- Applying for homeowners or car insurance
- Renting an apartment where you aren’t asked for permission or credit details
- Getting credit card or personal loan offers in the mail without asking for them
- Being notified that your credit card company has raised your limit as a reward for good financial behavior
What is the difference between hard and soft inquiries?
There are two main ways that hard and soft inquiries differ:
- A hard inquiry can affect your credit score and will stay on your report for two years before it eventually ages off your report. A soft inquiry shows up in a separate section of your credit report, but doesn’t affect your score.
- Hard inquiries usually require your explicit permission to run. When you apply for a loan or are asked for your Social Security number on a job application, expect a hard inquiry as a result. Soft inquiries happen all the time, usually without you knowing. If you’re getting mail from a credit card you’ve never done business with, they obtained your contact information and are using a soft inquiry to decide that you’re worth pursuing as a customer.
How do hard and soft inquiries affect your credit score?
We know that soft inquiries don't do anything to your score, and hard inquiries can drop your score. The effect on your score isn't as significant as other things you might do, however. There's far less damage than if you spend too much on a line of credit or make a late payment. The number of hard inquiries made in the past two years accounts for just ten percent of your FICO score.
How long do soft and hard inquiries affect credit score?
Soft inquiries don’t appear negatively on your credit report (although they do show in a separate section) and don’t affect your credit score at all. Hard inquiries take 24 months to disappear from your credit history, but Experian says they will usually only impact your FICO score for a few months. You don’t need to do anything to make them go away at this time; they simply disappear on their own.
How to dispute inaccurate hard credit inquiries
You should check your credit history every year by using the free report available to every consumer through an official website. What happens if you see a hard inquiry that you didn’t authorize or recognize? It’s possible that you are the victim of identity theft, or a company made a mistake.
Contact the credit bureaus that issued the erroneous report and go through their petition process for correction. Each will have a slightly different method, but it’s important you don’t delay in getting the process started.
How to minimize the impact of hard inquiries
Hard inquiries will do less damage than you think if you’re shopping around for the best rate on a car or home. Since these lenders are all checking at one time, for one purchase, it usually counts as a single inquiry.
Some of the newer FICO scores can give you up to 45 days to shop, but since you don’t know what score will be used to measure your next loan, it’s smart to play it safe with the 14-day window.
Shop for loans only when you need them, and stay on top of your credit score, to help manage your score over time and keep you in the best position possible for great credit card offers. The more you know about your credit history, the more likely you are to take positive steps to maintain it, whether the next credit inquiry is a hard pull or a soft one.