You need to know the differences between soft inquiry vs. hard inquiry.
A hard inquiry is when a lender pulls your credit report to evaluate you for a loan or credit card. A soft inquiry is when you or a company checks your own credit report.
In this article, we will explain each one of these types. Outlining the consequences of both a hard and soft inquiry helps clarify the whole credit application process. It is also important in helping you manage and improve your credit score.
What Is a Credit Check?
A credit check is a check on your credit history that potential lenders request whenever you apply for credit.
This lets lenders evaluate your trustworthiness as a borrower by seeing how well you repaid past loans, your current debt status, and if you make payments on time. This data is your credit history.
How Do Credit Inquiries Work?
Credit inquiries occur when you decide whether or not to extend your credit, how much to extend it by, and at what interest rate.
Credit lenders pull your reports from a credit bureau to access a summary of your previous debts, loans, and payment history
Creditors ultimately have one goal when obtaining your credit history: determining how likely you are to repay future debts to creditors.
However, there is a difference in credit inquiries to know about when looking at your credit report.
There are two forms of credit inquiries you need to know: soft and hard inquiries, let's dive deeper into each one.
What Is a Hard Inquiry?
A hard pull occurs when a lender pulls your credit report when evaluating you for a potential loan or credit card. They can harm your credit score.
A thorough inquiry becomes part of your credit history, so future lenders can see it, too. A high number of hard pulls can negatively impact your credit score, so you should avoid hard pulls when possible.
Also, remember to consider your current credit score before taking drastic action. The points you lose for a strong pull you can avoid lost if your credit score is healthy.
If your credit score is borderline low or needs serious improvement, think twice before requesting a hard inquiry.
Common Hard Inquiries
Below are some common hard inquiries you are likely to encounter on your credit reports at some point in your credit history.
- Credit card applications
- Mortgage applications
- Apartment rental applications
- Student loan applications
- Personal loan applications
- Auto loan applications
- Phone and utility applications
- Opening a new bank account or a new line of credit
What Is a Soft Inquiry?
In contrast, a soft pull occurs when you or a company checks your credit reports. Soft credit inquiries have no impact on credit scores.
Lenders might also refer to them as "soft pull" or "soft credit check.
Whenever you receive a credit card offer or another loan pre-approval
, it is almost certain that that company performed a soft inquiry on your credit. This lets potential lenders check whether you would even qualify for a loan before they offer it.
Soft pulls are often beneficial for creditors and applicants because they help lenders find borrowers who match their target profiles.
Additionally, checking your credit score to monitor its status is a soft inquiry. The three major credit reporting agencies
(Experian, Equifax, and Dun & Bradstreet) offer once-annual credit score checkups.
Other companies and organizations also offer free soft pulls on your credit at your request. One such organization is Credit Karma
. This excellent free tool lets you stay on top of your credit score.
There is no limit to the number of soft pulls you can perform.
Common Soft Inquiries
Below are standard soft credit checks to help you understand the soft credit pull process.
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- Employer credit checks
- Prequalified offers, including loans, credit cards, and insurance quotes
- Employment verifications and background checks
- Credit monitoring services
- Increases or decreases in your credit limit that you did not request
- Checking your credit report or score
- Pre-approval for loans and credit cards
- Requesting a copy of your credit report history
- Account reviews from your current creditors
- Submitting corrections for your credit report
What Should You Do Before a Query?
Preparation is key when it comes to any inquiry. Before an inquiry, you should ensure you have all the relevant information available.
First, check your own credit report and score to see where you stand. This will give you a good idea of how an inquiry could impact your score.
If you have a good credit score, an inquiry is unlikely to have a significant impact. But if your score is already on the lower end, an inquiry could drop it even further.
Once you've checked your credit, start shopping around for the best deal. Compare interest rates, annual fees, and other terms from different lenders. This will help you find the most affordable option.
Once you've found a good deal, it's time to apply, but before, consider whether you need to inquire. If it's not absolutely necessary, it may be best to wait. Finally, if you need to inquire, try to do it all at once.
Why Does a Hard Inquiry Hurt Your Credit?
A hard credit inquiry, or "hard pull," doesn't damage your credit score if it is already high.
However, it will likely take off points from your current credit score if it is less than ideal. Losing credit points with a hard pull is especially likely if you have a short credit history.
You can avoid some of the damages incurred by a hard credit inquiry if you choose not to apply for multiple new credits in a short period.
For example, applying for numerous credit cards in a small window of time means that each application will become hard credit inquiries on your credit report.
Ultimately, hard inquiries might harm your credit score if creditors view your activity as financially irresponsible and unreliable.
If a creditor notices that you frequently apply for multiple loans and credits, it's less likely that lenders will deem you reliable.
Hard credit inquiries will appear in your credit history for up to two years. However, the inquiry will only impact your score for the first 12 months, after which it will have no further impact.
How Many Points Does a Hard Inquiry Affect Your Credit Score?
Generally speaking, a hard credit inquiry decreases your credit score by no more than five points.
This number might be lower if you have a substantial and long-term credit history without any additional issues. If your credit history is relatively positive, your score should return to normal within a few months.
However, a hard inquiry might lower your score by up to ten points if you have a short credit history or a poor credit report.
The number of credit applications you submit within a short time also affects you.
The more applications you submit, the more damage your credit score incurs.
How to Dispute an Unauthorized Hard Inquiry
You may worry about the possibility of inaccurate credit inquiries on your credit report.
If you notice hard inquiries on your report that you did not initiate, it may result from fraud or an error with one of your credit card issuers.
If you notice fraudulent inquiries, don't panic right away. It would be best to begin by filing a dispute with the credit bureau to remove false hard inquiries from your credit report.
Credit bureaus must legally investigate the claim and adjust any inaccurate information when you file a dispute form.
If the credit bureau finds that your dispute is accurate and that your report has unauthorized inquiries, they will remove the inquiry from your credit report.
Filing a dispute to one of the three bureaus–Equifax, Experian, or TransUnion–will help you solve issues with fraudulent inquiries.
Soft Inquiry vs. Hard Inquiry at Camino Financial
At Camino Financial, we never stop working to give our clients the best. We have a proven track record helping entrepreneurs like you build their dreams' businesses.
Our mission is to give every small business access to capital and the tools and resources it needs to thrive. We help businesses like yours exceed their goals every day.
If you are considering financing options for your business, you can apply with us without affecting your credit score since we carry out a soft pull of your credit that won't affect your credit score.
Our pre-approval form is just that: a pre-approval, meaning there is no loan given and no obligation to request one. Simply answer a few questions about yourself and your business.
Once you get the loan, we'll make sure to find you the best financing solution that fits your needs.
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How many hard inquiries are too many?
There's no definitive answer to this question since it will vary depending on an individual's credit score and overall credit history.
One hard inquiry is too many. These inquiries can stay on your credit report for 2 years and cause your credit score to drop by up to 5 points.
How to minimize the consequences of hard credit inquiries?
If you're planning to apply for a loan or credit card, there are a few things you can do to minimize the impact of hard inquiries on your credit score:
- Apply for loans and credit cards that are within your budget.
- Apply for loans and credit cards with a low APR.
- Don't apply for multiple loans or credit cards at the same time.
- Space out your applications by at least six months.
Do soft credit inquiries affect scores?
It depends on the credit scoring model used. Generally, a soft inquiry will not affect your credit score. However, some credit scoring models may take into account all inquiries - both hard and soft - in calculating your credit score.
Therefore, checking with the lender's specific credit scoring model before applying for a loan or line of credit is important.
How long does a soft inquiry last?
Soft inquiries are typically only kept on file for a year or so. After that, they're usually automatically removed from the credit bureau's files.
What's the difference between hard pull vs. soft pull?
A soft inquiry is a credit check that doesn't affect your credit score. A hard inquiry is a credit check that does affect your credit score.
Also, soft pulls check your own credit report or when someone checks it for you as part of pre-approval for a loan or credit card.
Hard inquiries happen when a creditor pulls your credit report to decide whether to lend you money or extend your credit.
How to remove hard inquiries from your credit report?
You can contact the credit bureau directly and ask them to remove the inquiry, dispute the inquiry with the credit bureau, or contact the creditor who made the inquiry and ask them to remove it.