What’s the Difference Between Hard and Soft Credit Report Inquiries?
You’ve probably heard that the number of inquiries on your credit report may affect your credit score. The greater number of inquiries you have may negatively impact your score. There are two different types of inquiries: hard and soft.
Both types of inquiries will allow a lender to view your credit report, however, only hard inquiries can negatively affect your score. If you’ve been searching for a credit card, student loan, or even a personal loan, you may have seen websites state that applying for certain types of credit won’t affect your score. When lenders state this, they are pulling a soft inquiry for pre-qualification purposes.
What is a Hard Inquiry?
If you’re applying for any type of credit, you must give lenders an authorization to check your credit report. Hard inquiries are made when a financial institution is making a lending decision to the consumer. This can include mortgages, student loans, credit card, personal loans, or even auto loans. The key to understanding the main difference between a hard and soft inquiry is that hard inquiries could lower your credit score. Hard inquiries will be visible to all lenders. For example, if you apply for a credit card and have an inquiry marked on your credit report, and then the following month you apply for an auto loan, the auto lender will be able to see that you applied for a credit card.
The impact of hard inquiries is minimal compared to other credit factors that make up your score. They only represent 10% of your score whereas your payment history makes up 35% of your score. However, that doesn’t necessarily mean that it’s okay to have multiple inquiries whenever you’re searching for a credit card or a loan. Having a lot of inquiries during a short amount of time may signal to a potential lender that you’re trying to get a lot of credit in a short amount of time. Inquiries will last on your credit report for two years.
What is a Soft Inquiry?
The other type of inquiry is called a soft inquiry. This is also known as a “soft pull”. These types of inquiries do not affect your credit score at all. Unlike a hard inquiry, when a lender views your credit report they will not see the soft inquiries on your report. So when do soft inquiries occur?
Soft inquiries can take place when:
- A lender is screening customers for potential credit offers (think credit cards or loans)
- When you check your credit score through free credit monitoring services
- When you fill out a loan request from lenders
- Applying for a new job and conducting a background check
- Opening up a new account with a utility company
Just to reiterate, if a lender is performing a soft inquiry, checking to see if you qualify for a credit card, mortgage, or a personal loan won’t affect your credit score at all. However, if you decide to proceed with an application, there are times where the lenders may actually require a hard pull.
Grace Period for Hard Inquiries
If you’re shopping for a mortgage or an auto loan, it’s important to make sure you get the best deal. This will require you to apply with different lenders during a short period of time. In most cases, it might be a hard inquiry. When consumers are shopping around for a mortgage or auto loan, each inquiry will result in a hard pull. However, a consumer who is “rate shopping” won’t be penalized for repeated inquiries for certain types of loan. Equifax states that “Most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time- usually 30 days. In these cases, multiple inquiries will be treated as a single inquiry, and this will have little or no impact on your credit score.
Knowing the difference between each type of inquiry can help you make a better decision when a lender asks to pull your credit report. If it’s a hard inquiry, you’ll want to make sure that you’re confident in obtaining credit from the lender to begin with. A soft inquiry will provide you with the peace of mind knowing your credit score won’t be affected.