Soft And Hard Credit Check: What’s The Difference?
Your credit report can have either soft or hard inquiries. Soft inquiries are also regarded as soft credit checks or soft pulls, while other names for hard inquiries are hard pulls or hard credit checks. Whether a company can access your credit report with or without your permission will depend on the type of inquiry they need to do.
Now, let's define a credit check and discuss the two types of credit inquiries.
What is a credit check?
With a credit check, companies can access and review your credit report. Companies use it to run background checks or screen you for credit applications. As a consumer, you can check your credit report to see your credit activity and the status of your credit accounts.
The three credit reporting agencies (Equifax, TransUnion, and Experian) permit creditors, lenders, or companies to access and review a consumer's credit report.
What is a soft credit check?
A soft credit check (soft pull or soft inquiry) occurs when a financial institution or company gains access to limited information on your credit report. They do this to assess and verify your credit information. With a soft inquiry, a creditor or company can access your credit report without your permission—only you can see a soft pull on your credit report.
When you rate shop or search the rate for financial products like mortgages or auto loans, a soft inquiry will be recorded on your credit report. If you or a company accesses your credit report through a soft credit check, your credit score won't be affected.
When are soft credit checks done?
Creditors can do a soft credit check to review your credit report or pre-approve you for a loan or credit. Employers, insurers, utility suppliers, and landlords can also do a soft credit check to run a background investigation on you.
Here are some examples of when a soft credit check occurs:
- During employment application
- During a credit report review by insurance agencies
- When a lender wants to assess your eligibility for a pre-approved loan offer
- When you check your credit report
What is a hard credit check?
A hard credit check (hard pull or hard inquiry) occurs when a lender or financial institution accesses and thoroughly reviews a consumer's credit report. With a hard credit check, a lender will seek your permission before any inquiry happens.
A hard pull will enable financial institutions such as banks, mortgage companies, and credit unions to review your credit report and decide if you are creditworthy. If you've applied for credit, you'll see the inquiry requested by the creditor on your credit report within 30 days.
When a lender reviews your credit report, they can see hard inquiries from other lenders on your credit report.
When are hard credit checks done?
Lenders usually do a hard credit check when you apply for a loan or credit. A hard pull helps a lender to decide if they will grant you a loan or credit.
Here are some examples of when a hard credit check occurs:
- Loan application
- Rental application for an apartment
- Requests to increase your credit limit
- Credit card application
Why does a hard credit check impact my credit score?
The impact of a hard inquiry on your credit score is because of the risk a lender takes when they decide to grant you a loan. The more you take out a loan, the more you owe, which can impact your creditworthiness and make you lose a few points (less than 5 points) from your credit score every time there is a new hard inquiry. Even though hard inquiries can affect your credit score, the impact is not much compared to other factors.
How do I prevent the impact of hard inquiries on my credit score?
Take advantage of the pre-qualification process offered by some lenders. During the pre-qualification process, lenders will do a soft pull to know if you're eligible for a pre-approved loan. This will limit new entries of hard inquiries on your credit profile and help you save time by only applying for a loan you are eligible for.
Can hard inquiries be removed?
You can't automatically remove them—they stay on your credit report for up to two years before they fall off your credit report. Although, if you notice any hard inquiries you don't recognize, report them promptly to the credit reporting agencies.
How long can soft or hard inquiries stay on my credit report?
Hard or soft inquiries can stay on your credit report for up to two years. Soft inquiries won't impact your credit score, but hard inquiries lasting up to 12 months can impact your credit score. Hard inquiries of more than 12 months will not affect your credit score.
Can having a lot of hard credit checks repel creditors?
According to FICO, consumers with six or more credit inquiries on their credit reports may be eight times more likely to file for bankruptcy when compared to consumers without inquiries on their credit reports. With these findings, creditors may hesitate to approve your credit applications if you have a lot of hard inquiries on your credit report.
When is the best time to rate shop for credit or a loan?
The best timeframe to rate shop for auto, student, or mortgage loans is within 14 days. Rate shop within this timeframe to limit the entries of new hard inquiries on your credit report.
How do I get my credit report?
You can get a free credit report yearly from the three credit reporting agencies (Equifax, TransUnion, and Experian). AnnualCreditReport.com is a government-authorized website that can help you gain access to your credit report through the three credit reporting agencies.
Conclusion
Hard credit checks can affect your credit score for one year. You should avoid applying for too many loans within a short time frame. Ensure you meet the lender's requirements before you apply for a loan.
Check your credit report frequently to assess the validity of your credit information. If you see any inquiry on your credit report that you are not aware of, report it immediately to the credit reporting agencies.
Read this guide to know the next step to take if you observe any signs of fraudulent activity on your credit report.
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