Credit Inquiries – Soft vs. Hard Inquiry & Score Impact
Credit inquiries, which are also known as credit “checks” or ”pulls,” are basically records of someone checking your credit report. But not all credit inquiries are the same. There are two different types: hard inquiries and soft inquiries.
Hard credit inquiries are those done by lenders when evaluating your application for a loan or line of credit. They’re also the type that can damage your credit score, especially in large numbers over a short timeframe. Soft inquiries, on the other hand, aren’t related to an immediate credit decision and don’t affect your score. They can actually be made without your knowledge or involvement.
Below, you can learn more about the differences between hard and soft inquiries, including when each happens and what you can do to protect your credit score.
Hard Inquiries vs. Soft Inquiries
|Category||Hard Inquiry||Soft Inquiry|
|Happens When…||You apply for a credit card or loan||You check your own credit report
Employers run a background check
Creditors pre-screen you for offers
Creditors review the terms of your existing accounts
|Listed on Credit Report?||Yes||Yes|
|Can Be Seen By…||Anyone who checks your credit report||Just you|
|Affects Credit Score?||Yes||No|
It’s also important to note that some situations could result in either type of inquiry. This includes when you…
- Rent an apartment
- Lease a car
- Open utilities accounts
- Request a higher credit limit
- Open a money market account
How To Dispute Credit Inquiries
Since hard inquiries have a direct, negative impact on your credit score, you should always ensure those listed on your credit reports are accurate and were authorized by you.
In order to do so, check your credit report from one of the three major bureaus every four months (remember, you can request a free copy of each every 12 months).
If you spot any erroneous hard inquiries, you can dispute them directly with the respective credit bureau by following our guidelines in How to Fix Credit Report Errors.
Minimize Your Credit Score Damage
Whenever you apply for a new credit line or loan, your credit score will inevitably take a small hit from the issuer’s hard inquiry. Nevertheless, there are steps you can take to minimize the impact.
Take Advantage of “Rate Shopping” – The newest credit-scoring models all group certain types of hard inquiries made within a defined time period. For example, VantageScore credit scores consider all inquiries made by mortgage companies in a 14-day period to be a single inquiry. And the same is true of inquiries made by auto lenders, student loan providers and utility companies, respectively. The most recent model from the Fair Isaac Corporation similarly groups such inquiries added to your file in the 45 days before scoring.
They do so in recognition of the fact that most consumers compare a handful of different offers when picking a financial product. So if you are looking for a loan, it’s best to plan your shopping strategically.
- Be Selective with Credit Cards – The “rate shopping” perk does not apply to credit cards, so do not blindly apply for them in large batches (as each of them will count as its own inquiry). Instead, do your research and be selective in deciding which offer you’ll apply for.
- Improve Your Credit History – Your credit score will be less susceptible to the temporary damage associated with hard inquiries if you have a solid base to begin with. That means a long track record of on-time payments and reasonable credit utilization. So, the best thing you can do to mitigate inquiry damage is to habitually give your credit standing some TLC.
- Use A Soft Inquiry – Whenever there is a situation where an inquiry is required but it is ambiguous as to whether it will be a soft or hard pull, it won’t hurt to ask if you can do a soft credit check instead. For instance, if you are leasing a car, ask if you could pull a copy of your own credit report, print it out and pass it onto them in lieu of a hard credit check.
- Find Other Ways To Prove Your Financial Reliability – Under circumstances where a hard inquiry isn’t routine, check to see if alternative forms of proving financial responsibility are accepted. For example, if you’re renting an apartment, ask your landlord if you could perhaps pay your rent a few months in advance, put down a larger deposit, show documentation of income or print out copies of your bank statement instead being subjected to a credit inquiry.
- Timing Is Important – You can’t stop a hard inquiry from affecting your credit score, but you can time it so it doesn’t affect your ability to receive the best possible terms on loans. In other words, you can alleviate the negative consequences of hard inquiries by timing them so they don’t occur within six months before an important loan request. After all, you want your credit score looking its finest so you can receive the best interest rates.
To learn more about hard and soft credit inquiries as well as how consumers interact with them, we posed the following questions to a panel of personal finance experts. You can check out their bios and responses below.
- What percentage of people would you say are afraid of checking their own credit scores and reports for fear of a damaging inquiry?
- Do you think most people know the difference between “hard” and “soft” credit inquiries?
- What is the biggest mistake that people make with regard to credit inquiries?
- What is your best piece of advice regarding credit inquiries?
Image: Sergey Nivens/Shutterstock
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