What is the Difference Between a Hard and Soft Credit Inquiry?
Find out how different credit inquiries affect your credit and what you can do to manage them.
When you apply for a credit card or loan, or even when you’re simply curious about your credit score, lenders or credit agencies look at your credit report through a credit inquiry. This process helps them assess your financial behavior and reliability.
However, it’s essential to know that not all credit inquiries are the same. There are two main types: hard inquiries and soft inquiries. Each serves a different purpose and can significantly impact your credit score and report.
Key Takeaways
- Hard vs. Soft Inquiries: Hard inquiries lower your credit score; soft inquiries do not.
- Smart Credit Management: Limit hard inquiries to protect your credit score.
- Regular Monitoring: Check your credit report often and dispute unauthorized hard inquiries.
A hard inquiry typically occurs when you apply for new credit and can slightly lower your credit score. On the other hand, a soft inquiry happens when your credit is checked for reasons other than lending, like a background check or a pre-approval for a loan, and it doesn’t affect your score.
Grasping the nuances between these two types of inquiries is crucial for maintaining and managing your financial well-being, as it allows you to make informed decisions that protect your credit health.
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Understanding Credit Inquiries
Before diving into the differences between hard and soft credit inquiries, it’s important to understand what a credit inquiry is. A credit inquiry occurs when someone checks your credit report.
This can happen for various reasons, such as when you apply for a loan, credit card, or even a new job. The inquiry allows lenders, employers, or even landlords to assess your creditworthiness, helping them decide your financial obligations.
The Role of Credit Inquiries in Credit Reports
Credit inquiries are recorded on your credit report by the major credit bureaus—Experian, Equifax, and TransUnion. These inquiries remain on your report for a specific period, typically two years. However, not all inquiries have the same effect on your credit score. Some might lower your score temporarily, while others may not affect it at all.
What is a Hard Credit Inquiry?
A hard credit inquiry, also known as a hard pull, happens when a lender or financial institution checks your credit report to make a lending decision. This type of inquiry is common when you apply for a mortgage, auto loan, personal loan, or credit card. Since a hard inquiry signifies that you are seeking new credit, it can have a minor impact on your credit score.
How Hard Inquiries Affect Your Credit Score
Hard inquiries can lower your credit score by a few points, typically 5 to 10 points, depending on your overall credit profile. Multiple hard inquiries within a short period can have a more significant impact, especially if your credit history is short or you have few accounts. However, credit scoring models often recognize that consumers may shop around for the best rates, so multiple inquiries for the same type of loan within a specific timeframe are usually treated as a single inquiry.
Situations that Trigger a Hard Credit Inquiry
Typical scenarios where a hard credit inquiry occurs include:
- Applying for a new credit card
- Taking out a mortgage or car loan
- Requesting a credit limit increase on an existing card
- Applying for a personal loan or line of credit
Impact Duration of Hard Credit Inquiries
While hard inquiries remain on your credit report for two years, their impact on your credit score diminishes. The most significant effect occurs within the first year, after which the influence on your score reduces.
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What is a Soft Credit Inquiry?
A soft credit inquiry, or soft pull, occurs when your credit is checked for purposes other than extending new credit. Soft inquiries typically happen when you check your credit, when a potential employer reviews your credit report as part of a background check, or when a financial institution pre-approves you for a credit offer. Unlike hard inquiries, soft inquiries do not affect your credit score.
How Soft Inquiries Are Used
Soft inquiries are often used when your credit report needs to be reviewed, but no credit decision is being made. For example:
- Checking your credit report through credit monitoring services
- Pre-qualification checks for loans or credit cards
- Background checks by potential employers
- Existing creditors checking your credit as part of account management
No Impact on Your Credit Score
One of the key differences between soft and hard inquiries is that soft inquiries have no impact on your credit score. They are recorded on your credit report, but only you can see them. Lenders or other parties reviewing your credit report will not see soft inquiries.
When You Might Encounter a Soft Credit Inquiry
Soft inquiries can occur in various situations, including:
- Checking your credit report through credit bureaus or monitoring services
- Pre-approval offers for credit cards or loans
- Insurance companies reviewing your credit
- Potential employers conducting background checks
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Hard vs. Soft Credit Inquiries: Key Differences
Understanding the key differences between hard and soft credit inquiries can help you manage your credit more effectively.
Here’s a breakdown of how they differ:
Impact on Credit Score
- Hard Inquiry: This can lower your credit score by a few points, especially if you have multiple inquiries quickly.
- Soft Inquiry: Does not affect your credit score at all.
Visibility on Credit Report
- Hard Inquiry: Visible to anyone who checks your credit report, including lenders and other entities.
- Soft Inquiry: Visible only to you; not seen by lenders or others.
Purpose and Use
- Hard Inquiry: Used when you apply for new credit, such as loans or credit cards.
- Soft Inquiry: Used for non-lending purposes, such as background checks, pre-approvals, or self-monitoring.
Frequency and Duration
- Hard Inquiry: Multiple hard inquiries in a short period can negatively impact your score. They remain on your report for two years.
- Soft Inquiry: Multiple soft inquiries do not impact your score and have no cumulative effect. They also remain on your report but are only visible to you.
How to Manage and Minimize the Impact of Hard Inquiries
While soft inquiries are harmless, managing hard inquiries is essential to protect your credit score. Here are some strategies:
Be Selective When Applying for Credit
Avoid applying for multiple credit cards or loans within a short period. Each application can result in a hard inquiry, which may lower your credit score.
Monitor Your Credit Regularly
Keep track of your credit report to ensure no unauthorized hard inquiries. Regular monitoring can help you spot errors or potential fraud.
Time Your Applications
If you plan to apply for several forms of credit, try to do so quickly. Credit scoring models often count multiple inquiries for the same type of credit as one inquiry if done within a specific period.
Consider Pre-Qualification
Before applying for a new credit card or loan, see if you can get pre-qualified. Pre-qualification often involves a soft inquiry, which won’t affect your credit score and can give you an idea of your approval chances.
FAQs
How long do hard inquiries stay on your credit report?
Hard inquiries stay on your credit report for two years but only impact your score for about one year.
Can checking my credit report hurt my credit score?
No, checking your credit report results in a soft inquiry, which does not affect your credit score.
Do soft inquiries show up on my credit report?
Yes, but they are only visible to you and do not impact your credit score.
Can multiple hard inquiries lower my credit score significantly?
Yes, mainly if they occur within a short period and you have a limited credit history.
What is the main difference between a hard and soft credit inquiry?
The main difference is the impact on your credit score. A hard inquiry can lower your score, while a soft inquiry does not affect it.
Is it possible to remove a hard inquiry from my credit report?
Yes, if the inquiry was unauthorized, you could dispute it with the credit bureau to have it removed.
Conclusion: The Difference Between a Soft and Hard Credit Inquiry
Understanding the difference between a hard and soft credit inquiry is crucial for managing your credit effectively. While hard inquiries can temporarily lower your credit score, soft inquiries have no impact.
By being selective in your credit applications, regularly monitoring your credit report, and knowing when to dispute unauthorized inquiries, you can protect your credit score and maintain your financial health.
About the author
My name is Carlton Wolf, and I’ve been in the car business since 1994, both retail and wholesale. I created the Auto Cheat Sheet to better educate buyers about the deceptive sales practices many dealerships use nationwide. Please understand that not all car dealers are dishonest. However, you never know who you’ll be dealing with, though. I’m willing to share my knowledge and experience with anyone who listens. Keep in mind that I’m a car guy, not a writer.
