Credit inquiries occur when someone runs your credit information to gauge your spending and credit utilization habits. These types of credit checks play a crucial role in making financial decisions because the results can impact your ability to make purchases.
There are two main types of credit inquiries: a hard credit check and a soft credit check. Let’s compare these two types to give you a better understanding of how to make informed credit choices and protect your credit score.
What is a Credit Inquiry?
Any examination of your credit is a credit inquiry and a way for someone else to assess whether you use credit responsibly.
Various people, including lenders, potential employers, and landlords, may perform credit inquiries. Credit inquiries occur when you apply for a loan, undergo a background check for work, check your credit score, or try to rent a new home.
Through credit inquiries, individuals and companies can get a sense of how likely you are to miss a payment, fail to make rent, or default on a loan. These inquiries, also known as credit checks, impact your overall financial profile and possibly even your credit score.
Soft vs. Hard Inquiries: Key Differences
So, precisely what is a soft credit check, and what is a hard inquiry? We explore the differences here.
Soft Inquiries
Many people wonder, “What is a soft credit check?” and if a soft credit pull has negative consequences.
Soft credit checks are often conducted without your explicit knowledge and do not affect your credit score. Examples of soft credit pulls are pre-qualified offers, personal credit checks, and background checks. Other soft credit checks include credit monitoring services, insurance quotes, and credit limit changes on your credit cards that you didn’t request.
Hard Inquiries
In contrast, a hard inquiry occurs when you apply for a car loan, mortgage, credit card, or personal loan. Apartment rental applications and home utility applications may require hard credit checks.
These credit inquiries require your explicit permission to run and have a more significant impact on your financial situation. That’s because they have the potential of a major financial commitment for which you will be held responsible.
Comparison of Hard Credit Check vs. Soft Credit Check
| Financial Action or Result | Hard Credit Check | Soft Credit Check |
| You applied for a new form of credit. | X | |
| You checked your credit own score. | X | |
| You gave permission for your credit to be checked. | X | |
| The check could reduce your credit score. | X | |
| The check will appear on your credit report. | X |
Impact of Soft Inquiries on Your Credit Score
Soft credit inquiries do not affect your credit score because they are not directly tied to a specific credit card application or loan. Their purpose is to provide you with information about your own credit, provide you with offers you may be interested in, or gather information about you for a background check.
There are some circumstances when a soft inquiry could appear on your credit report, such as an employer check. However, this will not affect your credit or overall finances.
But does checking your credit score lower it?
No. In fact, it is safe, positive, and proactive to check your credit score regularly to catch any potential errors and understand your financial health before someone else reviews that information.
Impact of Hard Inquiries on Your Credit Score
How long do hard inquiries stay on your credit? And when do credit inquiries leave your credit score?
A hard inquiry can lower your credit score by an average of five to 10 points and can stay on your credit report for two years. However, hard credit checks typically only affect your credit score for the first year.
Therefore, it is vital to manage the timing of hard credit checks to minimize the impact on your credit score. For example, waiting at least 90 days between submitting new credit card applications may be beneficial.
Multiple Hard Inquiries: How Rate Shopping Affects Your Score
However, there are times when you may want to shop for the best interest rates before buying a new house or vehicle. Credit bureaus understand the concept of rate shopping and why you might have multiple credit inquiries simultaneously for the same type of credit.
For this reason, FICO typically consolidates credit inquiries made within 14 to 45 days, depending on the scoring model used.
Yet this situation differs from applying for multiple credit cards, each of which counts as a separate hard inquiry. Avoid applying for multiple credit cards at the same time for the best chances at lower interest rates and reduced credit impact.
Before shopping around for a loan, learn whether the credit you apply for bundles multiple credit inquiries into a single inquiry. Even if numerous hard inquiries cause a temporary hit to your credit score, the long-term savings of finding a loan with favorable terms may make that hit worth it.
How to Remove Unauthorized or Erroneous Inquiries
If you did not authorize a hard credit check, hard inquiry removal is possible. Occasionally, this occurs due to fraud, identity theft, or technical error.
If you were the victim of a mistaken hard credit check, you can file a hard inquiry removal dispute with the Experian, TransUnion, and Equifax credit bureaus. Each bureau offers an online form to submit a dispute and check the status of a previously disputed claim. Submitting your dispute over the phone or by mail is also available.
You can file a dispute for free when you see inaccurate or incomplete information. The credit bureaus will investigate your request and delete or revise false information.
Equifax, for example, promises to return the results of their investigation to you within 30 days. TransUnion allows you to add a 100-word statement to your report if their investigation hasn’t yet resolved your dispute.
Managing and Monitoring Credit Inquiries
As you can see, credit inquiries are an important part of your financial profile and can affect how and what you pay for in life. There are distinct differences between hard credit checks and soft credit checks, but each has its own unique place in assessing how you borrow and repay money.
Major takeaways to remember are that hard credit inquiries can drop your credit score by five to 10 points and can impact you for up to two years. Meanwhile, soft inquiries have none of these effects.
It is highly recommended that you be cautious when applying for new credit and monitor your credit reports on a regular basis. Free resources like AnnualCreditReport.com allow you to check your free credit report and determine whether everything looks accurate.
Fortunately, there are many ways to build your credit back up, even if a hard inquiry has lowered your score to a less-than-ideal number.
For example, Western Shamrock’s credit builder loans are a helpful step towards financial stability because they can show lenders that you are a responsible borrower who can make timely monthly payments. Many people take out installment loans to start or build their credit to a level that enables them greater financial freedom in the future.
Visit a Western Shamrock branch near you to learn more about our credit builder loans and other financial services we provide.
