If you’ve ever applied for credit, you’ve probably heard about hard inquiries. What exactly is a hard credit inquiry, and how is it different from a soft credit inquiry? More important, what do these two actions mean for your credit score?
We’ll cover all the important info here, starting with a quick review of how the credit application process works.
Applying for credit
How your credit history, credit report, and credit scores fit together
Any time you apply for credit, the lender will gather information about you to decide if they want to lend you money, how much, and at what interest rate.
To accomplish this, lenders will often access your credit report. Your credit report is a statement of information about your credit history and current credit situation. It contains details about current and past, including the amount you borrowed and your payment history.
Lenders aren’t the only ones who look at your credit report. Employers and landlords, for example, can also check your credit as part of their due diligence process.
There are three major credit bureaus—Equifax, Experian and TransUnion—so you actually have more than one credit report. You’re entitled to a free copy of your credit report every 12 months from each credit bureau. Be sure to check your credit reports regularly, watching for any inaccuracies or signs of identity theft. If you find an error, you can dispute it by phone, written letter or online.
Credit scores are calculated based on your credit report. There are multiple companies that calculate credit scores, including FICO and TransUnion. Each three-digit score is based on a different model, so your scores might vary across providers. Lenders often consider your credit score in conjunction with your credit report.
Hard inquiry vs soft inquiry
Each time an entity accesses your credit report—“pulls” your credit—it is considered an inquiry. There are two types of inquiries:
- A hard inquiry is generated when a potential lender accesses your credit report as part of an official loan application. Hard inquiries are done with your permission and can affect your credit score.
- A soft inquiry happens when you check your own credit or when lender does a preliminary credit check to offer you a pre-approval. A soft inquiry can happen without your permission or knowledge, and won’t affect your credit score.
Impact on your credit score
Soft inquiries are not recorded on your credit report and do not impact your credit score. This means checking your own credit report will never hurt your credit score—a common misconception.
Hard inquiries are recorded on your credit report and might impact your credit score. Credit scoring models focus primarily on your payment history, credit utilization ratio, and the types of credit that you have—but they also consider any new loans you might be taking out. Since a hard inquiry indicates you’re applying for new credit, it can sometimes hurt your credit score.
How much will a hard inquiry hurt your score? It depends on your unique situation and the particular credit scoring model. For some borrowers, the impact will be neutral; for others, a hard inquiry can knock several points off their score.
What if you’re shopping around for the best rate on a mortgage or car loan? Most credit scoring models recognize that it’s smart to submit several applications to find the best terms, so they consider all inquiries for the same type of loan within a certain period as one single hard inquiry. The window ranges from 14 to 45 days.
Multiple credit card applications, on the other hand, will generate multiple hard inquiries. Credit scoring models can assume that you intend to take out just one mortgage—even if you apply for several—but they can’t be so sure about credit cards. If you are opening several new credit cards, you could be in financial trouble or have difficulty making all your future payments, which will hurt your credit score.
When a hard inquiry lands on your credit report, the effect on your credit score is relatively short-lived. The hard inquiry stays on your credit report for two years, but it stops impacting your credit score after about one year.
At a glance: Hard inquiry vs soft inquiry
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