Applying for a credit card typically results in an inquiry on your credit report. Whether this inquiry – or credit pull – is “hard” or “soft” can mean the difference between taking a credit score hit when applying or escaping without a ding to your FICO Score. Here is how to tell the difference between a hard inquiry vs. a soft inquiry on your credit report:
Hard Inquiry Vs. Soft Inquiry
Many major actions involving your personal finances will also tie in your credit score and credit report, be it applying for a credit card, financing a car, or applying for a mortgage. For the most part, requesting a line of credit or a loan will compel the creditor or lender to fully review your credit history, and that evaluation will become part of said record. This action is known as a hard inquiry. However, entities can also look at your credit information for reference purposes without substantial consequences for you. These light inspections are called soft inquiries.
The primary difference between hard and soft inquiries is the impact each has on your credit report. In short, hard inquiries will be documented in your credit report and knock a few points off your credit score, while soft inquiries will not. But there’s slightly more to it than that. Read on to get the full dose of knowledge on these routine reviews.
At a Glance: What’s the Difference between a Soft Inquiry and a Hard Credit Inquiry?
- The bank must get your consent first
- Can impact your credit score
- Lenders can see your entire available credit history
What Is a Hard Inquiry?
Hard inquiries are also called hard pulls because creditors pull the information from credit bureaus’ records so they can look over it. Hard inquiries allow any requesting party to view your full credit history – as well as your credit score – which will include open accounts, debt currently owed, employer information, and any adverse actions that have been taken against you.
You will almost always be subjected to a hard inquiry whenever you’re applying for credit or a type of loan. Hard inquiries are reported in your credit report and will remain there for about two years. When financial institutions look at it, they will also check how many hard inquiries you’ve had recently. If there are several, you’re at risk to have your application denied because the lender might see you as a high-risk customer who’s in dire need of money and who perhaps doesn’t have the resources to pay it back. You especially don’t want too many hard inquiries in your report if your credit history is relatively young. The impact of a hard inquiry on a credit report decreases over time, though, usually after about 12 months.
A hard inquiry also lowers your credit score, typically by up to five points. Note that inquiries are one of the smaller factors that influence your credit score. Payment history and credit utilization ratio are by far the most influential aspects. Provided you remain responsible with your finances, your credit score should recover quickly after a hard pull or two.
One of the most important distinctions of a hard inquiry is that you must authorize the lenders or creditors to conduct them. Normally, you’ll be asked for your consent in the application you submit, so you’d give it by signing your name. Any time you notice a hard inquiry that you either do not recognize or never gave your permission for, it’s a red flag that you should address immediately.
Examples of Hard Inquiries:
Applying for an installment loan
Credit card applications
Collection agency tracing of late payments and collections (skip tracing)
Applying for a mortgage
What Is a Soft Inquiry?
Soft inquiries also go by soft pulls, and these reviews only look at basic information rather than your complete credit profile. They have no effect on your credit score and will not be recorded in your credit report. Normally soft pulls are conducted as part of background checks by employers when you apply for insurance, or for marketing purposes by issuers and lenders.
It’s important to note that unlike hard inquiries, soft inquiries do not require your consent – or even your knowledge. Credit card issuers often take information about people that they have purchased from the reporting bureaus and perform soft inquiries in order to narrow down potential customers they can target offers to.
Similarly, if you decide to check whether you prequalify for a credit card, issuers will do a soft inquiry on you in order to give you a quick decision. Whenever you check your own credit report you are also performing a soft pull. Soft pulls are visible to you on your credit report but not to others (except for insurance companies, who may be able to see soft inquiries by other insurance companies).
Examples of Soft Inquiries:
Checking credit scores with free apps
Employment credit checks
Insurance credit checks
Credit card pre-approval offers
Other Things to Know about Credit Inquiries
If you’re thinking of applying for any type of credit or loan, or are planning to submit an application that may lead to your financial background being looked at, it’s wise to ask the other party if and how your credit history will be impacted. It’s never wrong to inquire, and the people on the other side of the table are required to give you an answer. You should also get in the habit of occasionally checking your own credit report to ensure there isn’t anything you can’t explain.
You’re entitled by law to one free report per year from each of the three credit reporting companies, so you can space them out evenly. If you see a hard inquiry that you don’t recognize or did not consent to, you can dispute it with the bureau that provided the report. It’s possible that it was just an error, but it could just as likely be an attempt to have your identity stolen. On a related note, soft inquiries are not disputable. Although you should avoid too many hard inquiries at a time, an exception can be made if you’re rate shopping or searching for the best available deal on a loan or credit card. Generally, if you’re comparing related offers – say, mortgages – within a 30- to 45-day span, credit scoring models may only count the ensuing hard inquiries as one. This isn’t standard, though, as issuers and scoring models vary in their practices.