Whether you’re thinking of borrowing money for the first time or you’ve already borrowed in the past, you probably know that you’ll have to have a credit inquiry. However, not all credit checks are the same. Some are considered hard inquiries while others are considered soft inquiries. Before applying for credit, it’s important to know the difference between the two types.
When an individual or a business looks into your credit, the inquiry goes on your credit report. Included in the record of the inquiry – also called a pull – is the date of the inquiry and who made the inquiry. While soft credit checks don’t have an affect on your credit report, hard inquiries could.
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What is a Soft Credit Check?
A soft credit check occurs when an individual or a business looks at your credit report for a reason that’s not underwriting a loan. This may happen even if you haven’t given your permission.
Let’s say you’ve contacted a lender because you’re considering applying for a loan. The lender may be able to give you a rate estimate for the loan before you even complete the full application. You’ll fill out a short application which will result in a soft inquiry on your credit report. The company will then see a snapshot of your credit in order to estimate your loan rate.
When you check your own credit, this is also considered a soft pull. Also, if you have a credit card, the issuer may make a soft inquiry from time to time in order to perform account maintenance. This could cause your credit limit to go up or down.
Soft inquiries don’t hurt your credit. They’re only visible when you review your own report. If another person or company views your report, they won’t see soft credit checks.
What is a Hard Credit Check?
When you want to borrow money and you’re ready to complete a full application, the lender will probably perform a hard credit inquiry. This happens when you apply for things like a mortgage, a student loan, a credit card or a person loan. A hard inquiry means that the financial company will be able to review your credit report.
While lenders can often give you an estimated rate with just a soft pull, in order to process a full application, they’ll need to perform a hard pull. No matter the result of the application, the hard inquiry will stay on your credit report. If too many hard pulls occur within a short time period, this can impact your credit score for a small amount of time.
If you’re concerned about there being a hard pull on your credit report, you can contact the lender to find out if they only do soft inquiries or if there’s a chance they’ll need to do a hard inquiry. Some companies are able to process a full application with just a soft pull.
How Inquiries Impact Your Credit
While hard inquiries can impact your credit score, the change is usually small and temporary. Hard inquiries will stay on your credit report for two years, but they only have an affect on your FICO score for one year. Hard pulls have the biggest impact on your credit score, especially if you only have a few lines of credit. The more hard inquiries you have, the more of an affect they’ll have on your credit. If you’re shopping around for the best rate on, say, a mortgage, don’t worry too much about the number of hard inquiries being made. Oftentimes, inquiries made within a specific time frame are considered one inquiry.
It’s always a good idea to keep an eye on your own credit score and to regularly review your credit reports. You can get free copies of your three credit reports every year. You can check your credit score at any time with online tools.
