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Whether you’re considering a new financial product or thinking about your financial future, your credit is important.
Therefore, it is important to understand the implication of credit checks and the differences between hard and soft checks. So, here we’ll delve into the hard pull vs soft pull credit check comparison in more detail.
Why Do Credit Inquiries Matter?
Credit inquiries are performed when a company looks at the data on your credit report to gain insight into your financial habits and behavior.
While they don’t necessarily need consent to perform an inquiry, they must have a legitimate cause, such as your applying for a loan or new account with them. Companies that typically perform credit inquiries include banks, credit providers, letting agencies, utility suppliers, cell phone companies and even employers.
When a company makes a credit inquiry, they will be able to see if you’ve paid back credit obligations on time, the levels of credit you currently hold and how you are managing your debts. So, the results of your credit inquiry can have an impact on almost every aspect of your life.
What is a Hard Inquiry?
A hard inquiry or hard pull is typically when a financial institution checks your credit report to evaluate a lending application. If you apply for a mortgage, credit card or loan, you’re likely to have to authorize the financial institution to make a hard credit inquiry.
Hard inquiries provide a comprehensive look at your credit history and the inquiry tends to remain on your credit record for some time.
This is why having multiple hard inquiries on your credit report in a short period of time can be detrimental. It can act as a red flag to lenders who may assume that you are struggling to properly manage your finances.
What is a Soft Inquiry?
A soft inquiry or soft pull is typically needed when a company or person checks your credit report as part of a more general background check. For example, a credit card company may initiate a soft inquiry to see if you qualify for new credit card offers or an employer may run a soft credit check before they hire you.
If you’re comparing credit card deals or loan offers, it is likely that the company will run a soft inquiry to allow you to prequalify; they will only use a hard inquiry if you decide to go ahead with the product.
Unlike a hard inquiry, soft inquiries have no impact on your credit score. They may not even be reported in your credit history, depending on the credit bureau.
Examples of Hard and Soft Credit Inquiries
While we’ve explained the basics of hard and soft credit inquiries, you may need some clear examples to develop a full understanding.
Applying for a new credit card
Hard pull inquiry
Applying for a mortagge
Hard pull inquiry
Applying for a personal loan
Hard pull inquiry
Credit Card Pre Approval
Soft pull inquiry
Personal Loan Pre Approval
Soft pull inquiry
Get car insurance rate
Soft pull inquiry
Hard Credit Inquiries
- You’re applying for a new credit card. The credit card issuer will initiate a hard credit inquiry in response to your application to determine not only if you qualify, but also your new credit limit.
- You’re proceeding with a mortgage. Although you may have prequalified for a mortgage, the lender will initiate a hard credit pull when you decide to go ahead with the home loan. This will finalize your rate and loan terms.
- You’re applying for a personal loan. The lender will initiate a hard credit inquiry when applying.
Soft Credit Inquiries
- You’re comparing credit card deals: If you visit the website of a credit card issuer and want to see which cards you qualify for, most companies will perform a soft credit inquiry. They will then present you with the card options and you can proceed with a full application.
- You’re using a personal loan comparison site: If you’re shopping for a personal loan and using a comparison platform, it is likely that they will perform a soft inquiry to check what rates and terms you could be offered.
- You’re applying for new car insurance coverage: Insurers can also run credit checks when you apply for a new quote.
Hard Inquiry and Approval Chances: The Trade Off
Since a hard inquiry will show on your credit report even if you’re approved for the product, there is a trade-off between a hard inquiry and your approval chances.
If you’re speculating about whether you would qualify for several different products, you could trigger a detrimental impact on your credit report by submitting multiple applications.
So, while you may have a greater chance of approval with multiple applications, it could actually hurt your credit and therefore your long-term chances of being approved for new products.
Apply Only When Your Approval Chances Are High
Therefore, you need to take a more measured approach to walk the line between hard inquiries and approval chances. It is well worth taking some time to assess the qualification criteria for a specific product to have a more informed idea about your chances of approval.
For example, many credit card companies provide a rough estimate of the credit score needed for specific cards. So, if you know your latest score, you can apply for cards that are suited to your credit and increase your approval chances without needing to submit multiple applications and subject your credit report to multiple hard inquiries.
Another alternative is to use companies and sites that will only use a soft credit pull to allow you to prequalify. This will significantly increase your chances of being approved if you decide to go ahead with a full application.
How Many Hard Inquiries is Too Many?
The impact of hard inquiries on your credit score will ultimately be determined by the overall health of your credit. If you have excellent credit, one or two hard inquiries may lower your overall score by a few points, but it is not likely to have a significant impact.
However, if you have poor credit, those same couple of hard inquiries could drop your score to a level where you would struggle to qualify for any new credit products.
A more relevant question would actually relate to the timeframe of your hard inquiries. If you have multiple hard inquiries within a short amount of time, it is likely to be a greater red flag to potential lenders rather than a drop of a few credit score points.
If you’ve had multiple hard inquiries in quick succession, lenders may view it as a sign of risk. It could indicate that you are not properly managing your finances or debt, so lenders may be unwilling to offer additional credit.
How Long Do Hard Inquiries Stay on Your Credit Report?
If you’ve already had several hard inquiries on your credit report, you may be wondering about how long they will linger there. This can depend on the specific inquiry and financial institution, but generally, hard searches will remain on your credit report for 12 months.
Unfortunately, if the hard inquiry was a result of an application that you made, there is no way to remove the search from your credit report. You’ll simply have to wait for it to drop off after one year.
Of course, this doesn’t mean that you need to wait a full year between applying for a credit card and opening a new checking account. However, you do need to be aware that those two hard inquiries will be on your credit report if you are considering other financial products within one year.
This means that a new potential lender will be able to see the multiple inquiries, which could be particularly detrimental if you’re applying for a similar product in just one year.
How to Dispute or Remove Hard Credit Inquiries
If you do see a hard credit inquiry on your report that you do not recognize, it may be an indicator of fraud or identity theft. In this case, lenders can work with you to correct any detrimental impact on your credit report and score.
If you review your credit reports regularly, it can help you to monitor for any mistakes or indicators of fraud. If you see an error or a hard credit inquiry that occurred without your permission, you can dispute this with the credit bureau.
Just be aware that an inquiry that you do not recognize could indicate a larger problem, so be sure to thoroughly review your credit report to check for any suspicious activity or signs of fraud. If you suspect that you may have been a victim of fraud or identity theft, you can report it to the Federal Trade Commission using the helpline or via the website IdentityTheft.gov.
How to Minimize the Effect of Hard Credit Inquiries
If you’re looking to buy a home or new car, you shouldn’t allow a fear of hard credit inquiries to stop you from finding the best rates. There are some things that can help you to minimize the effect.
- Use the FICO Grace Period: FICO allows a grace period when you are making certain loan inquiries. If you’re looking at mortgages or auto loans, FICO may record multiple hard inquiries for the same type of loan as a single inquiry, providing they occur within a 14 day window.
- Be Aware of FICO Reporting: FICO typically has a 30 day period before loan inquiries are reflected in your credit score. This means that you can secure a new loan before your score is impacted if you work quickly.
- Rely on Soft Credit Inquiries: You can minimize the effects of inquiries on your credit report by looking out for lenders who use a soft credit inquiry first. This allows you to get a quote for your estimated rate and terms before you commit to a full application. The lender will only initiate a hard credit pull when you decide to go ahead with the product.
According to Affirm, the company never conducts hard credit inquiries and will use other information other than your credit score when determining if you qualify for a loan.
Yes, if you apply for PayPal Credit, the company will initiate a hard credit pull, which could impact your credit score and credit report.
A lease is still a credit product, so the lease company is likely to need to check your credit before finalizing an arrangement. However, some companies do allow you to check your status with a soft credit inquiry if you’re unsure about whether to proceed.
Hard inquiries typically drop your credit score by a few points. In many cases, this should have no significant impact on your credit score or report.
However, if you’ve had multiple inquiries or you already have poor credit, it may be detrimental.
Soft inquiries don’t actually cause a drop in your credit score. Some credit bureaus don’t even record soft inquiries on your credit report.
If you’re shopping for a mortgage and you’ve had multiple hard inquiries for loans, credit cards or other finance a short time ago, it could be a warning flag to lenders that you may not be able to afford your mortgage.
Again, if you have multiple hard inquiries, it may be a red flag to potential lenders that you may not be able to afford a new auto loan. So, you may have difficulties qualifying even if you have sufficient income.