The main difference between a soft vs. hard credit check is that each hard check knocks a few points off your credit score, whereas soft checks don’t affect your score. Both hard and soft checks pull the same financial data but for different purposes. Hard checks are typically done when you apply for a loan or credit card; soft checks are conducted for most other purposes, such as pre-screening for credit card offers.
It’s important for consumers to understand this difference because too many hard checks — also known as hard pulls and hard inquiries — can significantly lower your credit score. This in turn can hurt your chances of getting the best offers on credit cards and loans. Keep reading to learn more about credit checks and how to prevent unnecessary hard checks of your credit file.
What Is a Soft Credit Inquiry?
As noted above, a soft credit check pulls most of your financial data:
• The number and type of all your credit accounts
• Credit card balances
• Loan balances
• Payment history for revolving credit (credit cards and home equity lines of credit)
• Payment history for installment loans (auto loans, mortgages, student loans, and personal loans)
• Accounts gone to collections
• Tax liens and other public records
Soft inquiries are not used during loan or credit card applications. Instead, they’re used for most other purposes that require a background check, and do not require the consumer’s permission or involvement. Reasons for a soft check can include:
• Employment pre-screening
• Rental applications
• Insurance evaluations
• Pre-screening for financial offers by mail
• Loan prequalification
• Checking your own credit file
• When you’re shopping personal loan interest rates or credit cards
Soft credit checks do not affect your credit score, no matter how often they take place. Some soft checks appear on your credit report, but not all — you may never find out they took place.
When they are listed, you might see language like “inquiries that do not affect your credit rating,” along with the name of the requester and the date of the inquiry. Only the consumer can see soft inquiries on their report; creditors cannot.
What Is a Hard Credit Inquiry?
A hard credit inquiry typically takes place when you apply for a credit card, mortgage, or car loan, and give permission for the lender or creditor to pull your credit file.
Each hard pull may lower your credit score — but only by less than five points, according to FICO® Score. All hard inquiries appear on your credit report. While they stay there for about two years, they stop affecting your credit score after 12 months.
Not all loans require a hard credit inquiry — but consider that a red flag. Some small local merchants offer short-term loans, high-interest unsecured personal loans. Borrowers must show proof of income via a recent paycheck, but no credit check is required. The risks of these “payday loans” are so great that many states have outlawed them.
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Avoiding Hard Credit Inquiries
Consumers should carefully consider if they really need new credit before applying for an account that requires a hard credit check.
For example, department stores and some chains like to entice you to apply for their store credit card by offering a generous discount on your purchase as you’re checking out. In that situation, ask yourself if it’s worth a credit score hit (albeit a small one).
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. Other situations where there may be some flexibility include:
• Rental applications
• Leasing a car
• New utility accounts
• Requesting a higher credit limit on an existing account
• Opening a money market account
Disputing Inaccurate Hard Inquiries
A good financial rule of thumb is to review your credit reports every year to check for common credit report errors and signs of identity theft. The Fair Credit Reporting Act guarantees consumers the right to access their credit reports each year for free. Go to AnnualCreditReport.com to order reports from Equifax, Experian, and TransUnion.
To check for inaccurate hard inquiries, look for a section on your credit report with any of these labels:
• Credit inquiries
• Hard inquiries
• Regular inquiries
• Requests viewed by others
You can dispute hard inquiries and remove them from your credit reports under certain circumstances: if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the inquiry was added by mistake.
That said, under federal law, certain organizations with a “specific, legitimate purpose” can access your credit file without written permission. They include:
• Government agencies, usually in the context of licensing or benefits applications
• Collection agencies
• Insurance companies, when certain restrictions are met
• Entities that have a court order, as in child support hearings
Even so, if you didn’t give permission for a hard credit pull, it’s worth filing a dispute to request that the credit check be removed from your report.
Consumers may dispute hard inquiries online through AnnualCreditReport.com, or by writing to the individual credit reporting agencies.
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Hard Credit Checks and Your Credit Scores
As mentioned earlier, hard inquiries appear on your credit report, and each hard pull may lower your credit score by five points or less. Here we’ll go into a bit more detail.
Why Hard Inquiries Matter
Multiple hard inquiries within a short time frame can do significant damage to your credit score. For instance, a 20-point hit from four or five hard inquiries could be enough to move you from the Good credit range down to the merely Fair. Someone in a Fair credit range can pay substantially more over a lifetime in interest and fees than someone with a Good score or higher.
How Many Points Will a Hard Inquiry Cost You?
As noted above, each hard pull will lower your credit score by less than five points. One or two hard inquiries per year may not matter, especially if you’re not planning on applying for a loan.
However, consumers should keep in mind that the impact on their credit score remains for 12 months. The real concern is when you’re shopping around for the best interest rate on a loan, and too many hard inquiries over a short period combine to pull down your score in a significant way.
How Long Do Inquiries Stay On Your Credit?
Hard inquiries stay on your credit report for two years. But their impact on your credit score lasts only 12 months.
Soft inquiries may remain on your credit report for one or two years, but only the consumer can see them.
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Soft credit inquiries do not affect a credit score, while hard credit inquiries usually cost you less than five points. In both cases, businesses pull information from your credit reports. Checking your own credit report counts as a soft pull, as do most other situations where the consumer hasn’t given written permission. Hard pulls are typically done only when you’re applying for a loan or new credit account.
If you’re thinking of opening a new credit card or raising your credit limit on an existing account, consider a personal loan instead. With a SoFi Personal Loan, you can borrow between $5,000 and $100,000 for home improvements, credit card consolidation, medical costs, and more. And you can check your rate in 60 seconds without affecting your credit score.
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