The Difference Between Hard and Soft Credit Inquiries
If you’ve received credit offer after offer in which you’re “pre-approved” for a certain product, you may wonder how the lender made their decision.
The insurance/credit card/mortgage company likely made a “soft” credit inquiry into your report without your permission, allowing them a glimpse of your credit.
Soft credit inquiry
In addition to those pre-approval offers, a soft inquiry/pull can occur when you check your own report or when, for example, an employer checks it as part of a background check.
“Because soft inquiries aren’t linked to a specific application for new credit, they’re only visible on your credit report to you,” writes Experian, one of the three main U.S. credit bureaus. “Potential lenders won’t be able to see them … and soft inquiries are never considered as a factor in credit scoring models.” Meaning they won’t impact your score in any way.
That’s different from a hard inquiry.
Hard credit inquiry
“If you apply for credit, such as a mortgage, auto loan or credit card, the lender (with your permission) will check your credit report and credit score from one or more of the major credit bureaus,” writes Experian. This is known as a hard inquiry/pull.
Here are some common examples, per Credit Karma:
- Mortgage applications
- Auto loan applications
- Credit card applications
- Student loan applications
- Personal loan applications
- Apartment rental applications
This can affect your credit score, though one inquiry’s impact will likely be negligible. But if you apply to many of the products listed above in a short amount of time, this will affect your score negatively, but temporarily (it indicates to the credit companies that you’re “having trouble paying bills or are at risk of overspending,” writes Experian).
That said, if you apply to, say, multiple car loans or mortgage lenders in a short amount of time, most credit scoring models will count that as a single inquiry, because it assumes you’re shopping around for the best deal. How many days you have to apply for multiple products in one time period varies depending on the FICO model, though it’s usually 30 days, and “the VantageScore model gives you a rolling two-week window to shop for the best interest rates for certain loans,” writes Credit Karma. It’s still not good practice to apply to a bunch of credit cards, specifically, at one time, though.
“Experian lists each inquiry that is made into your file for two years, so that you have a complete record of who has reviewed your credit history, but they will only be counted as one inquiry when calculating the score,” the company notes. Their influence on your score will gradually decrease over the course of the two years.
Other credit score factors
As you likely know, credit inquiries are only one aspect of your credit score, and as Experian notes, hard inquiries aren’t likely to lead to denials of credit. Length of credit history, credit utilization and payment history are much more important factors.
That said, if you want to limit hard inquiries, you’ll want to be sure to do your loan shopping within a short window of time, so that they’re counted as one inquiry, and only apply for a credit card when you’re sure that you want it and will be approved.
Additionally, regularly check your report (which, again, won’t hurt your score) for hard inquiries, which will be listed, to check for fraud. If you find something suspect, here are the steps to take to get rid of the bad marks. And remember, inquiries only stay on your report for two years—so you shouldn’t be too worried about them, assuming they’re legit.
But more importantly, make your payments on time and try to use as little of your credit lines as possible. That will boost your score far more than minimizing inquiries.
Source: Alicia Adamczyk of LifeHacker