When a lender or creditor is considering offering you a line of credit or a loan, they will check your credit to help them make the decision of whether or not to lend you money. These inquiries can take the form of either a hard inquiry, which does affect your credit score, or a soft inquiry, which does not.
The type of credit inquiry that is done will depend on the person or company pulling your credit information. In this article, we’ll explain the differences between the 2 types, give you some common examples of both, and let you know how much each type will impact your credit.
Table of contents
- What Is a Hard Credit Check?
- What Is a Soft Credit Check?
- How To Know if an Inquiry Will Be Hard or Soft?
- Managing Your Credit
- Final Thoughts
Table of Contents
- What Is a Hard Credit Check?
- What Is a Soft Credit Check?
- How To Know if an Inquiry Will Be Hard or Soft?
- Managing Your Credit
- Final Thoughts
What Is a Hard Credit Check?
A hard inquiry (or hard pull) is used to determine whether or not you’re eligible to be given a loan or credit card. If you apply for credit, like a mortgage, auto loan, or a credit card, the lender will check your credit report and credit score from 1 or more of the major credit bureaus.
When a company requests a hard inquiry on your credit, it will receive your entire credit report, which will show things like lines of credit, loans, your payment history, and any amounts that went to or are currently in collections. It can also include additional places that you might have applied to get credit — whether that’s a car loan, mortgage, student loan, or credit card.
Because these inquiries are tied to an actual credit application, they’re considered hard inquiries, and they can affect your credit score. These pulls can lower your score, especially if you have a number of hard pulls within a short time span. Overall, credit inquiries make up 10 percent of your FICO score.
Who Uses Hard Inquiries?
Hard inquiries are used by companies to make sure you’re likely to pay back the loan you’re requesting or the lease you are signing.
Here are the most common users of hard inquiries:
Lenders and Credit Card Companies
Lenders and credit card companies use a hard inquiry to make an informed financial decision on whether or not to loan you money or a line of credit. This will be the case whether you’re applying for a mortgage or student loans or just want to open a new credit card.
One exception is with some banks that have bank-specific requirements, such as “receiving a bonus within the past 48 months” or Amex’s “1 bonus per card per lifetime” policy. If you’ve been denied a credit card based on these reasons, you usually won’t see a hard inquiry show up on your credit. This is because banks typically use the information they have on file for you to conditionally approve or deny you prior to pulling your credit.
Landlords can choose to run either hard or soft credit inquiries. Usually, when you submit an application for an apartment, the landlord will include a form that will ask your permission to run a credit check. Some landlords go through third-party background and screening companies who do a hard pull since you must give your Social Security number.
This isn’t always the case as landlords can choose to use services offered by one of the 3 major credit bureaus instead. These are considered soft pulls and the landlord will receive a modified report.
Common Hard Inquiries
The most common hard inquires will occur when you submit:
- Mortgage applications
- Auto loan applications
- Credit card applications
- Student loan applications
- Personal loan applications
- Apartment rental applications
How Hard Inquiries Impact Your Credit Scores
Applying for a credit card or a loan will result in a hard inquiry on your credit report. As we noted earlier, inquiries make up 10% of your overall FICO score.
But how will your overall score be impacted? Well, 1 hard inquiry might lower your score from 0 to 5 points, depending on your credit history. If you have even more inquiries, this will be further magnified. In general, once you hit 7+ inquiries on your credit report, you should expect to see a significant drop of 50+ points in your credit score.
This shouldn’t be a reason to avoid applying for credit since a hard inquiry is required to get the credit card or loan that you want. If your score is high enough, it will have little impact (if any) on your overall creditworthiness.
Problems arise when you have too many hard inquiries in a short period of time. This can be concerning to lenders since it is a sign of poor money management — opening a lot of new credit accounts may mean you’re having trouble paying bills and are at risk of overspending.
How “Rate Shopping” Is Treated
What do you do if you’re looking to get a mortgage or an auto loan and want to make sure you’re getting the best rate? The good news is that rating agencies understand that several inquiries in a short period of time (30 days per FICO’s scoring model) is common when looking for the best rate and they will group those inquiries into a single hard inquiry on your report.
Note that this occurs only if the inquiries are for 1 category of qualified loans — a mortgage, auto loan, or student loan. While a hard inquiry will always impact your credit score, this grouping of inquiries results in a smaller impact than multiple, separate inquiries.
How Long Inquiries Stay on Your Credit Report
First off, we recommend checking your credit report at least once a year to ensure that all of the information is accurate. You’re entitled to 1 free report per bureau per year through AnnualCreditReport.com. These reports will show all of your financial accounts along with any hard inquiries on your report.
Hard inquiries remain on your credit report for just over 2 years, but FICO weighs them less as time passes. Even if you have multiple hard inquiries in a span of just a few months, it’s still unlikely a potential lender will give them too much consideration.
How To Dispute Inaccurate Hard Inquiries
If you’re checking your credit report as we’ve recommended above, be sure to look for any inquiries that you don’t recognize. This could be a sign that someone may have applied for a fraudulent credit account in your name. In addition, simple errors in classification can happen.
Either way, if you spot an erroneous pull, notify the credit bureau immediately to dispute it. Write a letter explaining the error and include a copy of your report with the error highlighted or circled. We have a guide on how to dispute errors on your credit report.
The bureau will investigate and respond within 30 days. Credit bureaus are legally required to remove the hard inquiry from your report if it is inaccurate. You should also reach out to the financial institution that ran the credit check to let them know that you did not request it.
What Is a Soft Credit Check?
A soft inquiry (or a soft pull) shows the same information that we’ve noted above for hard inquiries. This includes information like lines of credit, loans, your payment history, and any amounts that went to or are in collections.
Unfortunately, due to the nature of soft inquiries, they can occur without your permission. The good news is that because soft inquiries aren’t tied to any applications for credit that you’ve done yourself, they’re only visible on your own credit report with a few exceptions:
- Insurance companies may be able to see other insurance company’s soft inquiries
- Inquiries by debt settlement companies you have authorized to access your report may be shared with your current creditors
Who Uses Soft Inquiries?
Since soft inquires don’t require your approval, it’s important to know who can access them.
Here are the most common users of soft inquires:
The most common instance of a soft inquiry would be when you monitor your own credit report. This includes services you use to monitor your credit score, like Credit Karma (review) or Mint. These can be pulled weekly, monthly, or as you request them.
The credit report that potential employers see is not the same report that you (or even other lenders) see. This report won’t show your credit scores or any account numbers. It also won’t show any information that could violate equal employment regulations, like your birth year or marital status.
Potential employers often use credit checks as a way to determine if you’re a responsible person. Having some negative items on your credit report doesn’t mean you won’t get the job, but lots of late payments or bills in collections can let employers know that you have a hard time staying organized with your money.
Credit Card Companies
Credit card companies are often the biggest users of soft inquiries — and they usually happen without your approval. This is because they use these soft pulls as a way to see if you’re pre-qualified for a credit card. Similar to what an employer sees, credit card companies won’t see information like your account numbers but will see things like your payment history and if you have any accounts in collections.
The companies will then send you the offers that might appeal to you to try to entice you to sign up for a new card. This can definitely get annoying (and take up plenty of space in your mailbox, to boot!), but companies are hoping that one of the offers you see might catch your eye and will be too good to pass up.
If you get auto insurance, homeowners insurance, or any other insurance quotes in the mail, this will also involve a soft pull. Again, these happen without your authorization and are used to give you an accurate quote based on your credit history.
These insurance companies don’t see all of your credit score, but rather what’s called a credit-based insurance score. They see a score that is similar to your FICO score but is just weighted a little differently.
Common Soft Inquiries
As a quick recap, the most common soft inquiries will happen when:
- You check your own credit score (annual or continuous monitoring)
- Employers run your background check
- Companies “pre-qualify” you for a credit card or insurance
How Soft Inquiries Impact Your Credit Score
While hard and soft inquiries show the same information, the main difference is that soft inquiries have no effect on your credit score. They aren’t even built into any credit-scoring models!
Soft inquiries are also not disputable. However, remember that potential lenders won’t be able to see them (except for insurance companies and debt settlement companies as we’ve noted earlier).
How To Know if an Inquiry Will Be Hard or Soft?
The difference between a hard and soft inquiry comes down to whether you gave the lender permission to check your credit or not. If you did, it will likely be reported as a hard inquiry. By signing a document, such as a credit card application, loan application, etc., you are giving the company permission to pull your credit. If you didn’t sign any documents or otherwise approve a credit inquiry, it should be reported as a soft inquiry.
There are other types of credit checks that could show up as either a hard or soft inquiry. For example, utility, cable, internet, and cell phone providers will often check your credit. If you’re unsure how a particular inquiry will be classified, you can always ask the company, credit card issuer, or financial institution to clarify before you sign any documents or turn in your application.
Managing Your Credit
Try to keep hard inquiries on your credit to a minimum since it can signify that you’re over-extending your finances and aren’t a reliable borrower. You don’t want your credit score to suffer by applying for too many credit cards or other loans.
Apply for Loans Sporadically
The easiest way to keep credit inquiries from affecting your score is to manage how often you are applying for loans or lines of credit. Be mindful of opening a lot of new credit accounts within the 2-year window when inquiries show up on your credit report. If possible, wait until some inquiries drop off before applying for additional credit.
In addition, shopping for multiple rates within 30 days is grouped together and treated by FICO as 1 inquiry. If you’re shopping for the best rate for a mortgage, car loan, etc., try to do all of your loan applications within this time frame.
Avoid Getting Denied
While the denial itself won’t hurt your score any more than an approval, you may still see a drop in your credit from the hard inquiry. One of the worst things would be to have this hard inquiry show up on your account and not even be approved for the loan or credit card!
Be aware of the loan or card requirements. If you are knowledgeable about your current credit score, you can try to only apply for the loans or credit cards that you feel reasonably sure you’ll qualify for.
Improve Other Aspects of Your Score
While credit pulls can lower your score by 3 or 5 points (per inquiry), this doesn’t have a huge effect on your credit. Your credit utilization makes up a much larger chunk of your credit score. There isn’t 1 magic percentage to hit, but the lower you keep it, the better. That means you shouldn’t be spending up to the maximum of your credit line each month.
The length of your credit history is also an important contributor to your credit score. This is important to remember when you’re considering closing some of your older credit and loan accounts.
Check Your Credit Frequently
Checking your own credit report regularly will never affect your credit and it can help you keep up to date on any major changes to your score. You can also monitor for any hard inquiries in case you need to dispute an erroneous item.
Also, keep in mind that each of the 3 reports could have different inquiries, as an inquiry is only added to the specific credit report that was checked. For example, if you check your Equifax credit report, the soft inquiry won’t be added to your Experian or TransUnion credit reports.
Consider Soft Pull Credit Card Approvals
There are a few credit card issuers and credit cards that do a soft inquiry (as opposed to a hard inquiry) when you apply for a credit card. These cards are generally targeted at those individuals with bad credit. The issuers do a soft inquiry to confirm your identity, but it’s still possible that they will have to do a hard inquiry if they need to gather more information.
Before you consider a card that doesn’t require a hard pull, make sure that you do your research and read the fine print carefully. There are usually higher APRs and harsher penalties for missing payments attached to these cards.
Freezing Your Credit
By placing a freeze on your credit, hard inquiries can’t occur, stopping any new accounts from being opened in your name. This might be a good option for you, especially if you’ve been the victim of identity theft or a data breach.
Not sure if a credit freeze right for you? Here’s more information about what it means to freeze your credit (and when it’s a good idea).
Hot Tip: Keep in mind that while hard inquiries can be stopped by freezing your credit, soft inquiries can’t.
Both soft and hard credit inquiries are done to assess the state of your credit. Soft inquiries are done constantly to track your own credit score or by companies to preapprove you for credit cards or loans. These won’t affect your credit.
It is very important to monitor and manage any hard inquiries you have to your credit report. Hard inquiries are necessary to get approved for many types of loans and are even performed by your future employer to see if you are a good candidate. These can affect your credit score and stay on your credit report for 24 months.