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Hard vs. Soft Inquiry – Understanding Credit Checks

Published December 10, 2021

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Credit & Debt
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You may know that when you apply for credit , a lender will check your credit score and credit history— but is every inquiry the same? Well, depending on what you’re applying for, there are hard and soft inquiries, and each may have a different impact on your credit score. The main thing to know about a soft credit check is that it doesn’t affect your credit score while a hard credit check may affect your credit score.

A soft credit check is just a request to see your credit information. An example might be a pre-approved credit offer, an employment application, or reviews of your account by current creditors. A hard credit check happens when you apply for new credit. An example might be if you apply for a mortgage, loan, or a credit card.

Let’s take a look at the differences between the two.

What’s the difference between hard vs. soft inquiries?

When you apply for a loan or a credit card, the lender will make a hard inquiry, also known as a hard pull or a hard credit check. The lender will pull your credit history and check your credit score to help decide whether to approve your application. A hard inquiry requires your permission but has the potential to lower your credit score because new credit accounts make up 10% of how your FICO score is calculated.

FICO says “for most people, one additional credit inquiry will take less than five points off their FICO Scores” (read more about how your score is calculated here). However, if you apply for a bunch of new credit accounts, that can be a warning sign that you’re having difficulty repaying your debts and you may be seen as a higher risk borrower. FICO says that “people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.”

A soft inquiry doesn’t require your permission, and it won’t have any effect on your credit score because you aren’t applying for a new line of credit. It’s best to limit the number of hard inquiries you receive, but you don’t have to worry about having too many soft inquiries.

When are soft vs. hard credit checks used?

A soft inquiry is used when you check your credit score, when a new employer does a background check, or when a lender is deciding whether to send you a pre-approved mortgage or credit card offer.

Hard credit checks happen when you submit an application for any type of credit. Here are some examples.

Applying for a new loan

When you apply for a loan such as a mortgage or auto loan, you’ll typically give your permission for a credit check. The lender will do a hard pull to help determine whether you qualify for the loan, and what interest rate you may be approved for. Generally, borrowers with higher credit scores have a greater chance of being approved for a loan and could receive a lower interest rate as well.

Student loans

Most federal student loans don’t require a credit inquiry, with the exception of:

  • Direct PLUS Loans, which are made to graduate or professional students
  • Parents of dependent undergraduates taking out a student loan for their child in their name

If you’re applying for a private student loan or refinancing an existing loan, you’ll have a hard credit check.

Applying for a credit card

You may have received an unsolicited invitation to apply for a credit card in the mail, or filled out a pre-approval form on a credit card issuer’s website. These offers and approvals involve a soft credit inquiry, because you’re not formally applying for credit yet. However, once you do apply for a credit card, the issuer will do a hard credit inquiry as part of their underwriting process, which will help them determine if you qualify and what your rate may be.

Applying for a refinance

Refinancing a mortgage or student loan is a similar process to applying for a new loan, thus the lender will do a hard credit inquiry.

Given that hard credit pulls can have a negative effect on your credit score, it’s a good idea to be strategic about when you might generate them.

Can you minimize the effects of hard inquiries?

Credit bureaus recognize that you may generate multiple hard inquiries when you’re shopping for something like the best mortgage rate. If you group multiple inquiries for the same product into a 14-45 day period, they’ll usually be counted as one application for new credit, which will then have a smaller impact on your credit score. The key here is to make sure you submit your applications in the specified timeframe.

Although hard inquiries are recorded on your credit report, they don’t remain there indefinitely.

How to remove hard inquiries from your credit report

Hard inquiries are typically removed from your credit report after two years, and they only affect your credit score for a year from the time they first appear on your report. It’s a good idea to request a free credit report at least once a year to check for any unauthorized hard pulls. You can do this at annualcreditreport.com or directly from each of the three credit bureaus (TransUnion, Equifax and Experian).

If you see a hard inquiry initiated by a lender you didn’t apply for credit from, it’s an indication of attempted fraud. You should be able to have it removed by reporting the fraud to the lender and asking them to notify the credit bureaus that the inquiry should be removed.

In summary

Credit checks aren’t a high hurdle, they’re just a bump along the financial road. As we’ve seen, a soft check doesn’t have any effect on your credit score and the impact of a hard check is minimal and short-lived. And if you gain access to new credit and continue to pay your bills on time, you could ultimately improve your credit score— and that’s a destination worth reaching.

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