What’s the Difference Between Hard and Soft Credit Report Inquiries?

Did you know that when someone looks at your credit report, it may affect your credit score? The process of pulling up your credit report is called an inquiry, and having too many inquiries of a particular type can actually have a negative effect. But the key to understanding which types of inquiries will hurt your credit score is knowing the difference between so-called hard and soft inquiries.

Hard inquiries

When you apply for a new loan or a new line of credit, you must first give the lender or credit card issuer permission to look at your credit report, which is known as an inquiry or a “hard pull.” These inquiries are recorded on your credit report, since your desire to borrow money is considered to be an indication of your creditworthiness.

Soft inquires

There is another type of inquiry that has nothing to do with your application for a new credit cards or a new line of credit, called a soft inquiry, or “soft pull.” In fact, companies may not even need your permission to perform these types of inquiries, which are generally done for marketing purposes. Examples of soft inquiries include those made by credit card issuers who mail firm offers of credit to qualified customers, the scores pulled monthly or quarterly by lenders on their own customers for the purpose of account review and employers who choose to do background checks. In addition, when you check your own credit report, you are only performing a soft inquiry.

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The most important difference

When it comes to the effect of these inquiries on your credit report and credit score, it’s important to realize that only hard inquiries can make a difference, not soft ones. The appearance of numerous hard inquiries within a short period of time is seen as an indication that you are looking to borrow money from multiple sources, which is considered to be a sign of increased financial risk. Or to put it another way, you would also probably feel uncomfortable loaning money to someone that you know has been asking many others for a loan. However, no matter how many soft inquiries are generated by banks, employers, or even yourself, your credit score will never suffer.

How much do hard inquiries affect your credit score?

When you learn that hard inquiries can hurt your credit score, you might react by avoiding new applications for credit at all costs. But what you may not realize is that recent applications for new credit actually makes up just a very small portion of your credit score. Usually only a minor percentage, 10 percent in some credit scoring methods, is made up of “new credit,” which includes hard inquiries. In contrast, your payment history and your amounts owed are likely much larger considerationsÔÇö30 percent or more.1

A 45-day grace period

There are some times when making multiple applications for a loan is not considered to be a sign of risk. When consumers shop around for a home mortgage or a student or automobile loan, they may generate many hard inquiries, but only because they are being smart consumers and looking for the best possible rates. Thankfully, the credit scoring formulas take this rate shopping behavior into account by not penalizing you for repeated inquiries for certain types of loans. For example, often hard inquiries within a 14- to 45-day “shopping” period for a mortgage, an auto loan or a other type of loan are considered a single inquiry.2

By knowing the difference between hard and soft inquiries, you can make the right decision when someone asks for your permission to check your credit.

1. http://www.creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php

2. https://www.creditkarma.com/article/will-rate-shopping-hurt-my-score

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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