Hard Vs. Soft Credit Inquiries: What’s The Difference?

Whether you’re applying for a credit card or another type of loan, it’s helpful to check your credit score to know where you stand. Creditors and lenders will likely look at your credit report through either a hard or soft credit check as part of your loan application. It’s important to understand the differences between a soft inquiry and a hard inquiry and how it could affect your credit score.

While a hard credit pull doesn’t affect your credit score that much, a little ding could mean the difference between an excellent and good credit score. If you’re looking to get approved for a loan with the most favorable interest rates, you’ll want to pay attention. Not doing so can cost you additional money.

What Are Credit Inquiries And Why Do They Matter?

Just about any time you apply for a new loan or other form of credit, the prospective lender will perform a credit inquiry. The lender will want to understand how you have handled credit in the past. This is a hard credit inquiry—where a lender will receive your full credit history from the three major credit bureaus (Equifax™, Experian® and TransUnion®). In contrast, someone performing a soft credit inquiry will receive a limited amount of credit information, including your credit score. These credit inquiries are also sometimes called credit checks or credit pulls, and we'll learn more about them throughout this article.

What Is A Hard Credit Inquiry?

When applying for credit (credit cards, auto loans or a mortgage) the lender will ask for a copy of your credit report and score from at least one of the three major credit bureaus in order to assess whether you’re considered creditworthy.

Since the lender “pulls” your credit when you submit an application, this is considered a hard credit inquiry and can affect your credit report and credit score. You’ll know it’s a hard credit check because you’ll be asked for your consent in order to complete an application.

Examples Of Applications That Could Result In Hard Credit Inquiries

• Student loan applications
• Applying for a credit card
• Getting a credit or loan increase
• Signing an internet or cell phone contract
• Opening a home equity line of credit (HELOC)

How Hard Credit Checks Can Affect You

If you have too many hard inquiries within a short time span, this could affect how lenders see you. Multiple hard inquiries mean you’re applying for multiple loans which could signal that you’re a riskier lender because opening too many accounts at once could mean you’re overextending yourself financially. Hard credit pulls can also temporarily lower your credit score by a few points. 

However, credit scoring models do take into consideration that you might be shopping for the best rates which could mean you’re submitting multiple applications at once. In this case, multiple hard inquiries within a short time span (for certain types of loans like mortgage loans and car loans) won’t have as huge of an impact on your credit score. Instead, it’ll count as a single inquiry.

Of course, there are other factors that are used to calculate credit scores. These include your payment history, the types of credit you have and your credit utilization ratio (the ratio between your available credit and how much you’re currently using). Changes in any of these factors can impact your credit score independent of a credit inquiry.

How Much A Hard Credit Inquiry Hurts Your Credit

While a single hard credit pull can lower your score up to five points, the actual amount depends on your credit profile. The amount of points can vary based on your credit history and other factors like the length of time between your last hard pull.

As mentioned earlier in this article, it will typically only count as one hard inquiry if you have multiple inquiries for the same types of loans within a short time span (typically 45 days). Hard inquiries will stay on your credit report for 2 years, but some credit scoring models like FICO^® will ignore them after 12 months.

How To Avoid Hard Credit Checks

It’s difficult to avoid hard credit pulls if you’re applying for loans or a new credit card, but there are ways to avoid some of them if you plan ahead.

First, understand what your credit score is so you’re not applying for loans or credit cards you don’t qualify for. If you have a credit card, check if the issuer offers a free way to check your score. There are also free credit score services that offer free credit reports.

You can also head to loan comparison websites. These will take your personal information and tell you which loans you might qualify for. This can help you narrow down your options and the number of applications you submit.

If you’re unsure whether something is a hard or soft inquiry, ask.

Minimizing The Effect Of Hard Credit Checks

If you’re comparing auto loans or mortgages, make sure to put in applications as close to each other as possible so it counts as a single hard inquiry. Otherwise, you can take additional steps to make sure that other factors of your credit score aren’t too negatively affected. This includes ensuring you make loan payments on time and lowering your credit utilization rate.

How To Handle An Unauthorized Credit Inquiry

Consumers must authorize a hard credit pull, but there are certain situations where an institution may perform an unauthorized hard credit check anyway. One scenario where this could happen is when you are buying a car in cash or with a loan secured in advance. 

If you see an unauthorized credit inquiry on your credit report, it’s important to dispute it. Check which credit reporting bureau has the error and contact them in writing so you can explain the error. The bureau should investigate and respond to your inquiry within 30 days. You can also contact the company that did the inquiry and request that they contact the credit bureau to remove the inquiry. As a matter of last resort, you can contact the Federal Trade Commission’s IdentityTheft.gov site if you feel that you may have been a victim of identity theft.

What Is A Soft Credit Inquiry?

A soft credit inquiry can occur without your knowledge; it’s intended to quickly check your credit in order to preapprove you for certain offers. If you’ve been getting credit card offers in the mail, it means someone has done a soft inquiry on your credit.

Examples Of Soft Credit Check

• Employer getting your background check
• Getting preapproved for a credit card or other types of loan offers
• Checking your own credit report
• Identity verification

The Effect Of Checking Your Own Credit Score

When you check your own credit score, you are doing a soft pull, which does not affect your credit score. In fact, regularly checking your own credit score can be a smart financial move. There are several different resources where consumers can get free credit scores. One popular source is annualcreditreport.com, where you can get a free copy of your credit report from each of the three major credit bureaus each year.

FAQs: Soft Vs. Hard Credit Check 

Do soft inquiries affect my credit score?

No, soft inquiries do not affect your credit score. Only a hard credit check (sometimes referred to as a hard pull or hard inquiry) can potentially impact your credit score. This impact is usually small (a few points) and temporary (lasting for a few months before falling off).

Why do lenders need to do hard credit checks?

When you apply for a new loan, mortgage or credit report, lenders will typically do a hard credit inquiry. A potential lender wants to understand how you have acted with credit in the past. Viewing your credit report will show things like your number of open accounts, whether you are paying on-time and if you have any accounts in a late or delinquent status. The information on your credit report may impact whether you qualify for a new loan or what interest rate you receive.

How long do hard inquiries stay on my credit report?

Hard credit inquiries typically stay on your credit report for 2 years. This means that potential lenders looking at your credit report can see the different inquiries that you've had over the past 24 months. Generally, though, only hard inquiries made in the past year have an impact on your credit score.

The Bottom Line: A Hard Credit Pull Can Lower Your Credit Score

Applying for loans and credit cards starts with understanding your credit report as it’ll give you insight into what could affect your score and what you might qualify for. A hard credit pull is used by potential lenders, contains your entire credit report and may impact your credit score. A soft credit pull, on the other hand, only provides limited credit information and does not impact your credit score.

If you're looking for easy access to your credit score and other financial information, download the Rocket Money℠app today.