Hard Inquiries vs. Soft Inquiries: What’s the Difference?
Many businesses assume that your credit score is harmed every time a lender reviews your credit report. This is not true. Knowing what hard and soft credit inquiries are is vital so that you don’t make the mistake of assuming otherwise.
A hard credit inquiry (when you apply for a new credit product) affects your credit score. In contrast, a soft question (when lenders or other ISPs review your credit score for purposes other than applying for credit) does not affect your credit score.
Let’s further explore how hard and soft inquiries work and how they affect your credit score.
Get to Know: Hard Inquiries
A hard inquiry is a check made when you’re applying for a loan or new credit product, such as a credit card or a personal loan. When you seek credit, lenders consider whether they might lose money by lending to you, and other factors, such as your score, may affect whether you receive the loan or not. Rental and utility applications may result in a hard inquiry.
When you apply for a credit card or other lending product, a creditor reviewing your credit counts as a hard pull, hard inquiries made on your credit score by creditors will decrease your score, sometimes by several points.
What is a soft inquiry? Your questions were answered
There are two kinds of soft inquiries, either you submitting them or from an external source. A soft inquiry (also known as a soft credit check or soft pull) takes place in many different circumstances.
If you wish to review your report more than once annually, it will not hurt your credit score. Checking your credit report often is such a beneficial habit as it can be advantageous to periodically head over the records to ensure that you have made any errors you need to or to notice signs of identity theft. A soft credit check can also happen when you apply to get pre-approved with a lender and get a quote.
While it is somewhat hit-or-miss if a company will check your credit when hiring you, it’s more common to pursue strong financial skills when hiring for those roles in which an accountant or chief financial officer position may take hold. If an employer wants to look into your credit when hiring, they typically have to make your request and be okay with the answer. At times you may not be aware a credit inquiry has been completed.
Learn about the types
Credit inquiries are hard or soft, and knowing the difference can help you understand your credit report. A hard inquiry is typically initiated by a lender when you apply for a loan or credit card. This inquiry will usually result in a small, negative impact on your credit score. A soft inquiry is generally initiated by you, such as when you check your credit report or when a company checks your credit for pre-approved offers.
Credit cards, loans, auto loans, lofts, mortgages, and utility applications are all examples of common hard inquiries. Since inquiries for credit limit increases are common, some loan providers also offer these. Current inquiries for pre-approved offers and insurance quote inquiries are also viable options among the common soft inquiries. Employers also commonly conduct credit checks on prospective employees.
Why hard and soft inquiries affect your credit score
Unfortunately, hard inquiries have a tarnished effect on your credit score, as FICO tracks every single hard inquiry. However, FICO factors on 10 percent of your general credit rating for questions. A significant role belongs to the investigations themselves.
Your credit score drops from one to five to 10 points after a single challenging future. Your rating probably won’t be significantly harmed by the inquiry in a short period. Still, the inquiry will remain in your file for one or two years. Try to be conscious of the soft inquiries unlikely to affect your score adversely.
How to keep hard credit inquiries from dragging down your score
It’s impossible to avoid all hard inquiries, but we can minimize the damage to our credit scores. When you apply for a new credit card, each inquiry will negatively impact you. So it is best to know what credit card you want and how likely you are to be approved before making a card and to space out the applications by at least six months. What happens when your application is found in a hard inquiry? It may result in unnecessary fees and higher interest rates.
Short inquiry responses will not impact your credit score, but you are unlikely to need to worry about long inquiries. It will be prudent to acknowledge straightforward inquiries and be patient. At the same time, you wait because your responses will improve over time. Your credit-specific details will remain unchanged while you continue practicing good habits that positively affect your credit.