Financial Education Blog

The difference between a hard credit inquiry vs. a soft credit inquiry and why they matter

Did you know that every time you apply for credit, you could be impacting your credit score? Potential creditors or lenders check your credit history each time you apply for a new credit card or loan. Depending on the scenario and the inquiry, you could see a change in your credit score. Here’s a quick comparison of hard and soft inquiries, what they mean and how much they can impact your credit score.

 

Soft Inquires

Soft inquires, or soft pulls or soft credit checks, typically occur when a person or company checks your credit as a part of a background check. Examples include when you check your own credit score, when a credit card company offers you a pre-approval or when a potential employers pulls your report as a part of their screening process. A soft inquiry generates the same information as a hard credit inquiry would, including your credit and payment history, debt management, your credit score and any derogatory marks you may have. Unlike hard inquires, soft inquires won’t affect your credit score (note that some credit bureaus do record them in your credit reports, but since they aren’t connected to a specific application, they are only visible to you).

 

Hard Inquires

Hard inquires, or hard pulls, occur when a lender or creditor reviews your credit report (with your permission) as a part of their decision-making process. Hard inquires show that you have applied for credit, whether for a mortgage, credit card or auto loan. Hard inquires also occur when a landlord checks your credit before approving a rent application .While one hard inquiry has a temporary negative effect on your credit score – it could lower it by several points – multiple hard inquires within a short period of time can lead to larger negative deductions. Plus, it can lead lenders to consider you a high-risk customer as it suggests that you’ll be accumulating a lot of debt. The exception to this is when there are multiple inquires for the same type of product, like a mortgage or auto loan, in a short amount of time.

Hard inquires remain on your credit score for a little over two years, but after 12 months, they no longer impact your score. Overall, the effect of a hard inquiry on your credit score ultimately depends on your overall credit health.

 

You Can Dispute Hard Inquires

One benefit to checking your credit score often is that you can spot errors – like a hard inquiry that occurred without your permission – and dispute it with the credit bureau. You can also contact the Consumer Financial Protection Bureau (CFPB) for further assistance.

 

Overall

You credit score plays a big role in your financial well-being. Before you apply for credit, take time to build you credit score since stronger credit may improve your chances of being approved for the financial products you want at the best terms.

Avoid applying for multiple credit cards in a short timeframe as they can quickly damage your credit score.

To keep track of your hard inquires, be sure to regularly check your credit score with credit reports.