Credit Score Blueprint: Everything You Need to Know
Hard Inquiries vs. Soft Inquiries
When your credit history information is accessed, this is called an inquiry. Soft and hard inquiries affect your credit score differently, so it’s essential that you know the difference between them.
A soft inquiry, or soft pull, is a credit check that doesn’t affect your credit score. When a third party pulls your credit report without the intention of issuing you new credit, this is a soft inquiry. Oftentimes, you, the consumer, is unaware that a soft pull is taking place. Soft pulls may occur when a lender that you currently have a line of credit with checks your credit information to make sure you aren’t defaulting on other accounts.
Lenders also conduct soft pulls in order to make you those pesky, unsolicited, “pre-approved” offers (also called “Firm Offers”) for lines of credit. (If you take them up on the offer, however, the lender will then conduct a hard inquiry before actually loaning you the money). When you pull your own credit report to monitor your credit, this can also be considered a soft inquiry.
A hard inquiry is a pull that adversely affects credit score. This kind of credit check occurs when you apply for a new line of credit, such as a credit card, auto loan, student loan or mortgage. While they can be tempting, new credit applications should be avoided unless necessary. For example, applying for a new retail credit card to receive a 10 percent discount on a single purchase can cause you to lose more money – via higher interest rates – in the long run than you gained with the one-time discount.
Hard inquiries remain on your credit report for 2 years. However, they only affect your credit score for one year, and their impact on your score lessens after 6 months. Having some inquiries on your report is not necessarily a big deal, but too many inquiries may give the impression to lenders that you are overextending yourself or trying to take on new debt.
Examples of Hard Inquiries vs. Soft Inquiries
- Applying for an apartment: hard inquiry
- A background check conducted by an employer: soft inquiry
- Applying for a utility or service (cell phone contract, cable, gas & electric, etc.): most likely, a hard inquiry
- Asking for a credit limit increase: This will probably be a soft inquiry – the institution issuing your current line of credit already has a good idea of your creditworthiness.
- Opening a savings account: Can be either a soft pull or a hard pull – be sure to check the bank’s policy before opening an account.
Note: When shopping for auto or mortgage loans, multiple hard inquiries made within a thirty-day period will only count as one hard inquiry on your credit report. Banks understand that you’re shopping around to find the best rates. It is not a good idea, however, to apply for other types of credit, such as credit cards or car loans, in the months prior to applying for a mortgage loan. These hard inquiries will result in a lower credit score when it comes time to make that larger, more substantial purchase.