When you apply for credit, whether it be a credit card, personal loan, or mortgage, the lender will likely pull your credit report to assess your creditworthiness. This action is called a credit inquiry or credit check, and it can be categorized as either a hard inquiry or a soft inquiry.
Understanding the difference between hard and soft credit inquiries is crucial because they can affect your credit score differently. In this article, we will discuss the definition of each type of inquiry, how they differ, and their respective impacts on your credit score.
What is a hard credit inquiry?
A hard inquiry occurs when a lender or creditor checks your credit report to make a lending decision. Hard inquiries typically occur when you apply for credit, such as a credit card, auto loan, or mortgage. Lenders need to assess your creditworthiness before extending credit, and hard inquiries give them the necessary information to do so.
Hard inquiries remain on your credit report for up to two years and can have a negative impact on your credit score. Each hard inquiry can cause a small dip in your credit score, typically by five to ten points. The impact of a hard inquiry is usually short-lived and disappears after a few months. However, if you have multiple hard inquiries within a short period, it can have a significant impact on your credit score.
What is a soft credit inquiry?
A soft inquiry occurs when someone checks your credit report for reasons other than making a lending decision. Soft inquiries can occur when you check your own credit report or when a lender checks your credit report for pre-approval offers. Soft inquiries can also occur when an employer checks your credit report as part of a background check or when you get a credit score from a credit monitoring service.
Soft inquiries do not affect your credit score and are not visible to lenders when they pull your credit report. They remain on your credit report for up to two years but do not have any impact on your credit score.
How do hard and soft inquiries differ?
The primary difference between hard and soft inquiries is the impact they have on your credit score. Hard inquiries can negatively impact your credit score, while soft inquiries do not have any impact.
Another difference is the purpose of each type of inquiry. Hard inquiries occur when you apply for credit, and the lender needs to assess your creditworthiness. Soft inquiries occur for various reasons, such as checking your own credit report or when a lender checks your credit report for pre-approval offers.
Lastly, hard inquiries remain on your credit report for up to two years, while soft inquiries remain on your credit report for up to two years but do not impact your credit score.
How do hard and soft inquiries impact your credit score?
As mentioned earlier, hard inquiries can negatively impact your credit score. Each hard inquiry can cause a small dip in your credit score, typically by five to ten points. The impact of a hard inquiry is usually short-lived and disappears after a few months.
However, if you have multiple hard inquiries within a short period, it can have a significant impact on your credit score. Multiple hard inquiries within a short period can signal to lenders that you are taking on too much credit, which can make them hesitant to extend you credit.
Soft inquiries do not impact your credit score, and they are not visible to lenders when they pull your credit report. Soft inquiries occur for various reasons, such as checking your own credit report or when a lender checks your credit report for pre-approval offers.
In conclusion, understanding the difference between hard and soft credit inquiries is crucial when managing your credit. Hard inquiries occur when you apply for credit, and they can negatively impact your credit score. Soft inquiries occur for various reasons and do not impact your credit score. Knowing the difference can help you make informed decisions when applying for credit and managing your credit score.
