Hard Inquiries vs. Soft Inquiries: Understanding Credit Score Impact

Lenders, landlords, employers, and other businesses with the proper authorization can request to access your credit report through hard and soft inquiries, also known as credit checks. Your credit report will display queries that are both soft and hard. However, your credit score is only impacted by one kind of inquiry.

To know the answer to what is the difference between a hard inquiry and a soft inquiry, keep reading:

Why Inquiries Matter

Credit inquiries are noted on your credit report to provide a record of when your credit history was accessed by lenders or other parties. Lenders may review these inquiries as part of assessing your creditworthiness when you apply for new credit.

Soft Inquiries

Soft inquiries, sometimes referred to as “soft pulls,” occur when:

• Employers or Background Checks : Some employers may perform a soft inquiry when conducting background checks as part of the hiring process.
• You Check Your Own Credit : When you personally check your credit report or score, it’s considered a soft inquiry. This includes checking through services like Credit Karma or directly through a credit bureau.
• Pre-Approved Credit Offers : Credit card companies or lenders may perform soft inquiries to pre-approve you for credit offers. These inquiries are typically used to determine if you meet their initial criteria.

Impact on Credit Score

Soft inquiries do not impact your credit score at all!

They are only visible to you and do not affect lenders’ decisions when assessing your creditworthiness. They serve informational or promotional purposes and are not considered in credit scoring models.

Duration on Credit Report : Soft inquiries also appear on your credit report but do not affect your credit score. They are visible to you and to the lenders or other parties who have performed them, but they are not seen by lenders when they review your credit history for lending decisions.

Hard Inquiries

Also called “hard pulls,” hard inquiries occur when a lender checks your credit report to make a lending decision. These typically happen when you:

• Apply for Credit : When you apply for a credit card, loan (personal, auto, mortgage), or any form of credit where the lender needs to assess your creditworthiness.
• Renting an Apartment : Some landlords or rental management companies may perform hard inquiries as part of their tenant screening process.

Impact on Credit Score

Hard inquiries impact your credit score because they indicate you are actively seeking credit. Here’s how they affect your score:

• Duration on Credit Report : Hard inquiries usually remain on the credit report for up to two years.
• Temporary Decrease : Each hard inquiry temporarily lowers your credit score, but only by a few points. The impact is usually minimal and typically rebounds within a few months.
• Accumulative Effect : Multiple hard inquiries in a short period can have a more significant impact on your score. This is because it may suggest to lenders that you are taking on too much debt or are in financial distress.
• Consideration Period : Credit scoring models consider the timing and frequency of hard inquiries. For example, inquiries made within a short window (like 14 to 45 days, depending on the scoring model) for similar credit (like a mortgage) are often treated as a single inquiry to minimize score impacts. This allows you to shop around for the best rates without damaging your credit significantly.

By How Many Points Does a Credit Score Lower After a Hard Inquiry?

According to FICO, your credit score can fall by as much as 10 points after a hard inquiry. However, sometimes the damage is not that significant. For many people, a single credit inquiry knocks off 3 to 5 points.

Will Checking My Own Credit Report Affect My Score?

No, checking your own credit report is considered a soft inquiry and does not impact your credit score. It’s a good practice to monitor your credit regularly.

Managing Credit Inquiries

To manage credit inquiries effectively and minimize their impact on your credit score:

• Plan Ahead: Before applying for credit, review your credit report to ensure its accuracy and address any issues that could affect your approval chances.
• Be Selective: Apply for credit only when necessary and when you are ready. Avoid unnecessary credit applications, as each hard inquiry can have a small impact on your credit score.
• Understand Timing: Understand the timing rules for credit inquiries. If you are rate shopping for a mortgage or auto loan, try to do so in a short period to consolidate inquiries and reduce their potential impact on your score.
• Dispute Errors: If you notice unauthorized inquiries or inaccuracies, dispute them with the credit bureaus to have them corrected or removed.

What Is the Difference Between a Hard Inquiry and a Soft Inquiry?

In conclusion, when it comes to understanding what is the difference between a hard inquiry and a soft inquiry, the answer lies in the intention behind your search and the person checking your credit score.

It is important to manage your credit score to ensure you stay eligible for loans. Hard inquiries impact your credit score temporarily and are initiated when you apply for credit. On the other hand, soft inquiries do not affect your credit score and are often for informational purposes. Being aware of why each type of inquiry occurs can help you make informed decisions when applying for new loans or credit cards.

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