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 importantly, what do these two types of inquiries 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 access your credit report. Your credit report is a statement of information about your credit history and credit situation. It contains details about current and past debts, including the amounts you’ve 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.
Your credit score—one of the most important aspects of your credit profile—is 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 scoring model, so your scores might vary across providers. Lenders usually consider your credit scores in conjunction with your credit report.
Hard inquiry vs soft inquiry
Each time an entity accesses your credit report—i.e., “pulls” your credit—it is considered an inquiry. There are two types of inquiries:
- Hard inquiry - “A hard inquiry occurs when a financial institution such as a lender checks your credit report to make a lending decision,” says Ogechi Igbokwe, a financial educator and the founder of One Savvy Dollar. “For example, a borrower applying for a car loan, credit card, or mortgage.” Hard inquiries, also known as active inquiries, can only be done with your permission.
- Soft inquiry - A soft inquiry happens when you check your own credit or when a lender does a preliminary credit check. “You usually get soft inquiries when applying for a new job (background check), or when credit card companies check to see what credit card offers you are eligible for,” says Brian Meiggs of My Millenial Guide. “Also, lenders may routinely pull soft inquiries on their borrowers to ensure they are in compliance with certain loan covenants or other requirements,” adds Riley Adams of Young and the Invested. Soft inquiries can be done without your permission, but are only ever visible to you.
Impact on your credit score
One of the biggest differences between hard and soft credit inquiries is how each one impacts your credit score. According to Elaine Poff, a licensed loan officer with Fifth Third Bank, “Soft inquiries are credit pulls that aren’t reflected on your report as an inquiry.” It’s a common misconception that checking your own credit report will hurt your credit. “Soft credit checks have no affect on your credit score,” stresses Carrie Feinberg of SF Money Coach.
Conversely, hard inquiries are recorded on your credit report and could have an impact your credit score. How much can a hard credit inquiry hurt your score? It depends. Most credit scoring models tend to 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. For some borrowers, the impact will be neutral; for others, a hard inquiry can knock several points off their score. “A hard inquiry will typically only drop your credit score by a couple of points (5 or less), but if you apply for too many credit lines in a short period of time, it will certainly add up,” says James Lambridis of Debt MD.
What if you’re shopping around for the best rate on a mortgage or student loan? “[I]f you’re comparing rates for a mortgage or student loan in the same time period, you shouldn’t get dinged for each inquiry,” says Sam Schultz, co-founder of Honeyfi, an app that helps couples handle everyday finances. “That’s because all inquiries within a 45-day period are considered a single inquiry.”
Lenders can generally assume that you intend to take out just one mortgage, even if you apply for several. However, it’s a different story if you’re applying for multiple credit cards at once. Lenders may conclude that your multiple applications mean you’re in financial trouble, and worry that you’ll have difficulty making your payments on time. “Be mindful of this if you are thinking of applying for many different lines of credit,” warns Oliver Browne of Credit Card Insider.” “The problem lies when you have many hard inquiries, about more than four per year,” agrees Browne’s colleague Jacob Lunduski. “If you apply for many accounts all at once or in a short period of time, you could see your scores drop significantly.”
The upshot is that 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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