Understanding your credit scores and how they can help you is important, and a little knowledge can go a long way. One area that many people don’t understand is what a soft credit inquiry and a hard credit inquiry are and how they differ.
Before you authorize a hard inquiry (sometimes called a hard pull) on your credit, you may want to know how this activity could affect your credit score. When a financial institution evaluates your credit history to find out how much of a risk it would be to lend you money, they take a close look at your credit history. Also, when you initiate a mortgage, car loan, or apply for a credit line you’ll authorize them to pull your credit history, and this is sometimes known as a hard inquiry or hard pull on your credit.
How a hard inquiry affects your credit score
Every time you give a financial institution permission to conduct a hard inquiry, it appears on your credit report. One part of your credit score is the number of times you’ve authorized a hard credit inquiry and how frequently you have done so. This matters to creditors because people who open a lot of new credit accounts or take out multiple loans in a short amount of time may be less likely to be able to pay those debts as promised.
Multiple credit inquiries are not as big of a factor to your credit score as making payments on-time and in full, or your debt to credit ratio, but they can affect it. If you want to shop for a mortgage or finance a vehicle, you may need to authorize multiple hard pulls in a short period. Shopping or comparing interest rates for larger purchases usually earns you a 15 to 45-day window during which credit scoring models will combine multiple inquiries and count them as one.
If you apply for multiple credit cards during a short amount of time, it may appear to potential creditors as if you plan to accumulate a lot of debt quickly. Credit card applications aren’t grouped together like mortgage or auto loan inquiries, so submitting numerous credit card applications in a short amount of time may affect your credit.
Who initiates a soft inquiry?
A soft credit inquiry does not require your permission. Utility companies, landlords, potential employers, and banks may use the soft inquiry process to simply verify your identity. If you’ve received credit card offers in the mail stating that you are pre-approved for an offer, it’s likely that the company conducted a soft pull on your credit to find out if you may qualify.
How a soft inquiry affects your credit score
Soft inquiries have no effect on your credit score. If you apply for a job that requires a security clearance or if you’ll be working with money, your employer may ask if they can see an abbreviated version of your credit history to check for red flags.
Both soft and hard credit inquiries appear on your full credit report. Only hard inquiries, which require your permission, can impact your score.