Not all credit inquiries are the same, and it’s important to know the differences. Hard credit inquiries are used when you’re borrowing from a lender, and the lender wants to check your credit before deciding whether you’re suitable to lend to. This happens with loans, car loans, credit card applications, and mortgages.
Soft credit inquiries are a little different, and they are used when you check your own credit score or get a pre-approved line of credit from a lender. If you want to find out more about the differences between the two and why different types of credit inquiries are used, you’re in the right place. Read on now to find out more about this issue.
Often when seeing if you qualify for something, such as signing up for a new television provider, or getting an alarm system put in, you will be told that the company must do a credit check, and are told it either “may effect your credit score” or “it won’t affect your credit score”. What does this mean? Why is it that some credit checks affect your credit score and others don’t?
Like a feather hitting the ground, your credit isn’t affected when a soft inquiry is performed.
What Are Soft Inquiries?
A soft credit inquiry can happen when you check your credit score, apply for certain loans, when you are sent credit card offers in the mail, or when an employer looks into your credit history. Soft inquiries, generally known as soft pulls, often happen without our knowledge and will not impact your credit score. Typically you are not notified of soft credit inquiries because it is independent of an application for new credit, be aware some lenders will perform soft credit checks to qualify you before performing a hard credit check when finalizing the loan. Soft pull credit inquiries are not reported to your credit report, which means you can check your credit daily and not worry about affecting your current score!
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Like this boxer your credit may have taken a hit when a hard inquiry is performed.
Soft inquiries are different from hard credit inquiries because they’re usually attached to certain things and never new credit applications. For example, a soft inquiry might be used when it comes to carrying out your own personal credit check or a pre-approved credit offer. Insurance applications will use soft inquiries, as well as account renewals and checks associated with employment applications.
You really don’t need to worry about soft inquiries because they’re not seen on checks carried out by external parties. You can see them if you carry out a personal credit report request, but others won’t be able to find them. And they’re not seen as a sign that you’re a risky person to lend money to and things like that. Those connotations are only associated with hard credit inquiries.
Soft Inquiries Impact on Your Credit Score
As you might have guessed, the impact of soft inquiries on your credit score is very minimal; in fact, there’s no real impact at all. Your credit score can’t and won’t be damaged by having soft inquiries carried out. So when these do happen, you don’t need to worry about them because your credit score will be the same afterward as it was before.
You might want to access and see your soft credit inquiries, and that’s why they are accessible by you, but this is something that’s only done for reference and nothing more than that. They are not disputable, for instance.
What Are Hard Inquiries?
A hard inquiry will often occur when you apply for a new loan, a new home, a collection is being placed on your credit, or a new credit card. Unlike soft pulls, or soft inquiries, that often happen without our knowledge a hard inquiry requires you give the lender consent. Think of the last time you applied for a new home, did you read the entire “Terms & Conditions” before hitting the accept button? Lenders state in the terms of conditions by pressing “accept” or signing on the loan you agree to have your credit checked. Hard credit inquiries make up 10% of your credit score and can affect your credit score if you have too many in a short amount of time! Hard pull credit inquiries will stay on your credit report for two years, and you may see a slight decrease in your credit score when applying for multiple loans in a short amount of time. Frequent hard inquiries in a short period of time can show lenders that you are hard pressed for cash or getting ready to incur a lot of debt. This will make you look like you are not a good candidate for loan approval!
In short, neither type of inquiry will hurt you for long but hard inquiries do have a more lasting effect than a soft inquiry. Remember! Be sure to cross reference and hard credit checks that show up on your credit report, because if you find an unauthorized hard check on your report, you may be at risk for credit card fraud.
Check to see if you have any unauthorized credit inquiries today at Soft Pull Credit.
When you apply for credit, whether that’s a car loan, credit card, or mortgage, the lender that you’re looking to borrow from will check your credit report and credit score. This is something that can only be done with your permission, but giving your authorization will be necessary if you want your credit application to be successful.
It’s because these kinds of inquiries are linked to a credit application that they’re considered hard and therefore have a more significant impact on your credit score in the long-term. When the lender goes ahead and carries out these credit checks, they’ll use one of the major credit bureaus that you’ve probably heard of already. They offer the most reliable reading of your credit for the lender.
This is all about risk. The credit check has to reflect the level of risk a lender is taking on some level. Statistics tell us that riskier consumers are also the ones who tend to apply for new credit. FICO finds that people who have 5 or more credit inquiries in the space of a year are more likely to become overdue on credit repayment obligations than those that don’t have any inquiries.
Hard Inquiries Impact on Your Credit Score
There’s always an impact on your credit score when there’s a check carried out on you. It’s important to understand that hard inquiries do have an impact on your credit score, but it’s far from the only or even most significant factor that goes towards deciding your credit score.
According to Experian, a hard inquiry will lower your credit score by around 5 to 10 points, and it’s usually less than that. Over time, that impact will decline and eventually disappear completely. Things like your payment history have a much bigger impact than inquiries. So when taking care of your credit, meeting payment deadlines is much more critical. VantageScore says that 5% of your overall credit score will be based on the hard inquiries that are made.
Related: Tips For Identity Theft
How Long Inquiries Stay on Your Credit Score
As we’ve established, soft credit inquiries are never able to impact your credit score in the first place, but hard inquiries can. So how long do those hard credit inquiries stay on your credit report? Hard inquiries usually remain on your credit report for a little more than two years. But the impact they have reduces and declines over time. So they’ll mean less after a year than they do after a month, for example.
There is the possibility of having inquiries removed if a company pulled your error by mistake for whatever reason. That’s why it’s worth regularly checking your credit report to see if there’s anything there that shouldn’t really be there. You won’t be able to have accurate hard inquiries that you gave permission for removed from your credit report, though.
Related: What to do if You Lose Your Wallet
Managing Your Credit Inquiries Better
If you want help with improving your credit score and protecting it going forward, services like the ones offered by Soft Pull Credit might be useful to you. That kind of expert support and insight can help you out and take some of the workloads off your shoulders. There are lots of other things you can do to manage credit inquiries and your credit score in general better.
Other things you can do to look after your credit score better is to only apply for credit when you really need it. Your report should regularly be checked for mistakes and any signs of fraud. Staying on top of your payments each month and paying off debts quickly will be a big help too.
The most important thing to understand about hard and soft credit inquiries is that they are similar in certain ways and different in others. They are both used to assess your credit situation, but only hard inquiries affect your credit and remain on your credit report for two years.