Checking Your Credit

Hard and Soft Credit Inquiries

You’ve probably heard about hard and soft credit inquires. The soft ones are the “good ones” because they don’t affect your credit score when they occur. The hard ones are the bad ones because they do affect your score -and in a negative way.

But what is this credit inquiry stuff all about? What is the real difference between hard and soft inquires and why do the hard ones affect your credit? Curious minds want to know. Well, let’s start with the basics.

What is a soft inquiry?

Soft inquiries (also known as “soft pulls”) typically occur when a person or company checks your credit as part of a background check. This may occur, for example, when a credit card issuer checks your credit without your permission to see if you qualify for certain promotions.

Common soft inquiries would include things like: Checking your credit scores on-line with agencies like CreditKarma, Employment verification (i.e. background checks), “Pre-qualified” credit card offers or insurance quotes.

Unlike hard inquiries, soft inquiries won’t affect your credit scores. (In fact, they may or may not be even be recorded in your credit reports, depending on the credit agency.) Soft inquiries are only visible to you when you view your credit reports.

A common question is: What will checking my own credit score be considered? Fortunately, checking your own score, such as through Credit Karma, VantageScore or other on-line credit score companies, will result in a soft inquiry. It won’t affect your score at all.

What is a hard inquiry?

Hard inquiries (also known as “hard pulls”) usually occur when a financial institution, such as a lender or credit card issuer, checks your credit scores when making a lending decision. They commonly take place when you apply for a mortgage, personal loan or credit card, and in almost all cases, you have to authorize them.

Common hard inquiries would include things like: Mortgage applications, Student loan applications, Auto loan applications, Credit card applications, Personal loan applications and Apartment rental applications

A hard inquiry means that you are looking for someone to loan you money so it increases a potential lenders risk a small amount. Because of this, the credit agencies deduct a few points from your credit score. We know it doesn’t sound fair but that’s just the way that that financial services companies work.

At least, in most cases, a single hard inquiry is unlikely to play a big role in whether you’re approved for a new credit card or loan. And the damage to your credit scores usually decrease or disappear in two years.

What you want to avoid is multiple hard pulls in a short period of time. Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer. The way they see it, it suggests you may be short on cash or getting ready to rack up a lot of debt.

Conclusion

Your credit scores play a substantial role in your financial health. To help you keep track of hard inquiries that may influence your credit scores, check your credit reports occasionally. As we mentioned, while one hard inquiry may knock a few points off your scores, multiple ones in a short amount of time may cause more damage.