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Soft vs Hard Credit Inquiries: Understanding the Impact on Your Score

Understanding Credit Checks: Soft and

Hard Inquiries

As a responsible consumer, it is important to know how credit checks work, especially when applying for credit or loans. Credit checks can either be soft or hard inquiries, and each type has a different impact on your credit score.

In this article, we will take a closer look at soft and hard inquiries and the differences between them.

Soft Inquiries

A soft inquiry occurs when someone checks your credit file or credit report as part of a background check, or when a lender pre-qualifies you for a loan or credit card offer. Soft inquiries have no impact on your credit score or current credit situation.

For example, when you check your own credit report, this is considered a soft inquiry. You can do this for free once a year from each of the three major credit bureaus in the United States (Equifax, Experian, and TransUnion) through the website AnnualCreditReport.com.

If an employer checks your credit as part of a background check when you apply for a job, this is also considered a soft inquiry and won’t affect your credit score. Similarly, if a credit card company sends you a pre-approved offer in the mail and checks your credit report to see if you meet their criteria, this is also a soft inquiry and won’t impact your credit score.

Hard Inquiries

On the other hand, a hard inquiry occurs when you apply for additional credit, such as a mortgage, credit card, auto loan, student loan, personal loan, or apartment. Hard inquiries can have a slight impact on your credit score and borrowing power, especially if you have multiple inquiries within a short period of time.

Each hard inquiry can lower your credit score by a few points, but the impact is usually small and only lasts for about two years. However, if you have multiple hard inquiries within the past 12 months, this can indicate to lenders that you are trying to take on too much debt or are a higher credit risk, which can result in a more significant decrease in your credit score and borrowing power.

For instance, if you apply for a credit card, the credit card issuer will make a hard pull on your credit report to evaluate your creditworthiness. Similarly, if you apply for a car loan, the lender will make a hard inquiry on your credit report to assess how much risk they are taking on by lending you money.

Differences Between Soft and

Hard Inquiries

The main difference between soft and hard inquiries is how they affect your credit score. Soft inquiries do not have any impact on your credit score, while hard inquiries can slightly decrease your score.

If you are shopping around for the best rates on a mortgage, car loan, or other type of credit, it’s important to do so within a short period of time. This is because multiple inquiries for the same type of credit within a short period of time (around 14-45 days, depending on the credit scoring model) are usually treated as a single inquiry and won’t have as much of an impact on your credit score.

In addition, you can avoid multiple inquiries on your credit report by asking lenders whether they will make a hard or soft inquiry before applying for credit. When pre-qualifying for a mortgage or auto loan, for example, you can often choose to have the lender run a soft inquiry to see whether you meet the basic requirements.

Conclusion

Knowing the difference between soft and hard inquiries is an important step in managing your credit score and borrowing power. By minimizing the number of hard inquiries on your credit report, you can maintain a healthy credit score and have more options when it comes to applying for credit or loans.

In summary, soft inquiries have no impact on your credit score, while hard inquiries can decrease your score slightly. It’s important to keep track of your credit report and know when your credit is being checked so that you can manage your credit score effectively.

Impact of Inquiries: How Soft and

Hard Inquiries Affect Your Credit Score

When you apply for credit of any kind, lenders will typically check your credit history by pulling your credit report. This process is known as a credit inquiry or credit check.

Depending on the type of inquiry, it can have an impact on your credit score. In this article, we will explore how soft and hard inquiries impact your credit score, and what you can do to manage your credit effectively.

Hard Inquiries Affect Your Score More

A hard inquiry occurs when you apply for a credit card, loan, or any other type of credit. Hard inquiries are visible on your credit report and can negatively affect your credit score.

The impact of the inquiry will depend on a variety of factors, including the number of hard inquiries you have, the type of credit you are applying for, and how recently you applied for credit. Generally, a single hard inquiry will lower your credit score by a few points, usually around 5 points.

However, multiple hard inquiries within a short period of time can have a greater impact and can significantly reduce your credit score. When you apply for credit, the credit bureau will note the request, and if there are multiple requests from various lenders, this can signal that you are trying to take on too much debt, and your credit score may decrease.

However, not all hard inquiries are treated equally. If you are shopping for the best rate on a loan, such as a mortgage or a car loan, the credit bureaus understand that you may need to have multiple inquiries.

To avoid lowering your score, the credit bureaus typically will group inquiries for the same type of credit within a certain time frame and treat them as a single inquiry. The exact length of this time frame will vary depending on the credit scoring model, but it is typically between 14 and 45 days.

Soft Inquiries Have Little to No Impact

A soft inquiry occurs when a lender or creditor checks your credit history for a reason other than applying for credit. Some examples include checking your own credit report, receiving pre-approved credit card offers, or when an employer checks your credit during a background check.

Soft inquiries have little to no impact on your credit score. Having soft inquiries on your credit report is not a cause for concern.

In fact, checking your credit report regularly through a soft inquiry can help keep you aware of any unexpected changes to your credit, such as fraud. Additionally, if you receive pre-approved credit card offers in the mail, those are typically based on a soft inquiry.

If you accept the offer, a hard inquiry will be made when you apply for the card, but that can be avoided by declining the offer if its not the right fit for you.

Maintain Your Best Credit Score

Maintaining a strong credit score is important for many reasons. It can impact your ability to get approved for credit, such as a mortgage or car loan.

It can also influence the interest rate you qualify for, which can mean saving you thousands of dollars over the life of the loan. If youre planning to make a large purchase, such as buying a car or applying for a mortgage, its important to avoid making any additional credit inquiries during the application process.

Even if one inquiry won’t significantly lower your credit score, multiple inquiries can add up and affect your creditworthiness. To maintain the best possible credit score, you should only apply for credit when you need it, and when you can comfortably afford to repay any credit extended to you.

Keep your spending in check and manage your credit responsibly.

The Bottom Line

Credit inquiries are an integral part of the credit approval process. Soft inquiries have little to no impact on your credit score, while hard inquiries can affect it more significantly.

By monitoring your credit score and having a clear understanding of how credit inquiries can impact your credit, you will be better equipped to manage your credit and maintain a healthy credit score. This, in turn, will help you get the credit you need, when you need it, and at the best possible rates.

In conclusion, knowing the difference between hard and soft inquiries is crucial for managing your credit score and borrowing power. Hard inquiries, which are visible on your credit report and occur when you apply for credit, have a greater impact on your credit score than soft inquiries, which are made for non-credit-related reasons.

While a single inquiry will lower your credit score by a few points, multiple hard inquiries or too many inquiries in a short period can lead to a significant decrease in your credit score. By understanding the impact of inquiries on your credit score, you can manage your credit more effectively, maintain a healthy credit score, and get the credit you need when you need it.

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