Credit checks are a fact of adulthood. Everything from buying a home or car to renting an apartment, taking out a credit card or personal loan, applying to certain jobs, and having utilities turned on can involve a credit check.
Not all credit checks have the same impact on your credit score, though. Let’s shine a spotlight on soft vs. hard inquiries, aka soft and hard pulls.
What Is a Soft Credit Inquiry?
Soft inquiries often take place during an employment background check, when you check your own credit, or sometimes when rate shopping.
Soft pulls do not affect credit scores, no matter how often they take place, and they can even occur without the individual knowing about them.
Potential employers might ask to view a credit report to get an indication of whether you manage your finances responsibly. However, they can’t see information like marital status, or even your actual credit score. Insurance companies see a similar report, which doesn’t give them your credit score.
Soft inquiries are often used by companies that send out preapproved financial offers by mail, for example.
You can review your own credit reports without worrying that it will affect your credit score. In fact, the Fair Credit Reporting Act guarantees the right to access credit reports from each nationwide credit bureau every year for free. Go to www.annualcreditreport.com to order reports from Equifax, Experian, and TransUnion.
You can usually see soft credit inquiries on your own credit reports. You might see language like “inquiries that do not affect your credit rating” with the name of the requester and the date of the inquiry.
Here are some of the benefits that can be gained from soft credit inquiries:
• You can get prequalified for various types of loans.
• You can receive prescreened credit card offers.
• You can check your credit reports regularly to help ensure accuracy.
• Landlords can use soft inquiries to help determine which applicants meet the criteria to rent an apartment.
What Is a Hard Credit Inquiry?
A hard credit inquiry typically takes place when you apply for a credit card, mortgage loans, or car loan.
Credit issuers “pull” your credit history from one or all three of the major credit bureaus. There are also dozens of smaller credit reporting agencies that may track your financial behavior.
The credit bureaus track much of your financial activity, including:
• Credit card balances
• Loan balances
• History of payments for revolving credit (like a credit card or home equity line of credit) and installment loans (like an auto loan, home loan, student loan, or personal loan)
• Number and type of credit accounts
• Bankruptcy and other public record filings if they meet the minimum standards for reporting
The Fair Credit Reporting Act dictates that a person or organization must have a “permissible purpose” to access your reports. But federal law and some state laws allow quite a few parties to pull your credit if you have a current or potential relationship with them, Nolo says.
These entities can legally request your credit reports, according to the Fair Credit Reporting Act:
• Government agencies
• Collection agencies
• Utility providers
• Insurance companies
• Entities that have a court order
All hard inquiries will show up on your credit reports, and each hard pull outside the scope of “rate shopping” for a single loan may lower your credit score a tad—by less than five points, according to FICO® . FICO and VantageScore are the two most common scoring models used to convert credit report information into credit scores, ranging from 300 to 850 points.
Recommended: Why Do I Have Different Credit Scores
Multiple inquiries from auto, mortgage, or private student loan lenders within a short period of time are typically treated as a single inquiry. For FICO, it’s a 45-day window; for VantageScore, it’s 14 days.
On the other hand, if you apply for several credit cards within a short period of time, multiple inquiries will appear on your reports, and your scores could take a hit. Many inquiries can indicate to lenders that a consumer is repeatedly trying to apply for new credit and might be having financial issues.
Hard inquiries stay on a consumer’s credit reports for about two years and stop affecting credit scores after a year.
You may know that credit scores usually fall in a range of 300 to 850, and that higher is better. Regardless of the scoring model, your credit scores are influenced by payment history, credit utilization (the portion of your available revolving credit you’re using, expressed as a percentage), the age of your loans and lines of credit, the types of accounts, and new or recent credit accounts opened or sought.
Avoiding Hard Credit Inquiries
While having a few credit and loan accounts is expected and can even help a credit score, consumers may want to carefully consider if they need new credit before applying for an additional account.
You’ll want to weigh whether it’s worth a small credit score hit, for example, to apply for a department store credit card just for a discount on a purchase.
Another way to minimize hard inquiries is to ask which type of credit check a company intends to run. If, for example, a cable company usually requires a hard credit inquiry to open an account, you might ask if a hard pull can be avoided.
Why does it matter? Because a high credit score typically means more approvals and better rates and terms. Someone with a so-called bad credit score will hear more “no’s” and will probably pay substantially more over a lifetime than one with a higher score.
Disputing Inaccurate Hard Inquiries
It’s recommended that you review your credit reports periodically to make sure you’re on track and that no errors are lurking.
There are also credit monitoring services, some you don’t have to pay for, that will alert you to changes.
To check for inaccurate hard inquiries on your credit reports from Equifax, Experian, and TransUnion, look for a section that might include:
• Credit inquiries
• Hard inquiries
• Regular inquiries
• Requests viewed by others
You can ask to remove hard inquiries from your credit reports if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the credit bureau added the inquiry by mistake.
To do so, you’d write to the credit reporting agency whose report shows inaccurate information and ask the agency to remove it.
The Federal Trade Commission also offers guidance.
Recommended: Common Credit Report Errors to Know
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Soft credit inquiries do not affect a credit score, while hard credit inquiries may have a small or big impact on a score, depending on timing and credit type. In both cases, they pull information from your credit reports.
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*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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