Hard vs. Soft Credit Inquiries: How They Affect Your Credit Score
Credit inquiries probably happen more often than you realize. Simply put, they are created whenever a potential lender, creditor or individual (even you!) accesses your credit report.
There are two types of credit inquiries, otherwise known as "pulls": soft and hard. The names even indicate the severity of each one's potential impact on your credit score, from none (soft) to some (hard).
But don't be fooled: soft pulls aren't totally harmless, and hard pulls aren't always devastating.
Here's what you need to know about the two types of credit pulls.
SOFT CREDIT INQUIRIES
A soft inquiry is when someone wants to get a general idea of your creditworthiness, and it has no impact at all on your credit score. This includes when you check your own credit report — so don't be afraid to request a copy from each bureau at least once a year.
Other businesses may also view submit a soft inquiry to view your credit report. The most common soft pull happens when a credit card company pre-approves you, but it also occurs when a potential landlord, insurer or employer checks your credit history to get a sense of how financially responsible you are. For the record, thanks to the Fair Credit Reporting Act (FCRA) access to your credit report is strictly limited by law as to who can view it and when it's appropriate.
A soft credit inquiry won't necessarily reveal your entire credit report, either. Many credit card companies simply look at your credit score to make sure you're a low-risk candidate for a preapproved card.
While soft credit pulls don't affect your credit score, if you bite and fill out an application for a credit card for which you've been pre-qualified, a hard inquiry follows.
HARD CREDIT INQUIRIES
Hard pulls, on the other hand, do affect your credit score because they indicate that you're actively pursuing one or more new lines of credit. New credit requests, such as for a mortgage, auto loan, credit card or student loan, signal that you're potentially taking on more debt, so they decrease your score. In fact, new credit (which includes both new accounts and inquiries) accounts for between 10% and 12% of your credit score. A hard credit inquiry normally gives a lender or creditor a deeper look at your credit report including credit and payment history, how you handle debt, any negative actions (i.e. bankruptcy) and of course, your credit score.
Hard inquiries usually don't have a major impact on your credit score. According to FICO, a single inquiry most likely will only bring it down five points or less. And even "rate shopping," which causes multiple lenders to look at your credit report even though you're ultimately only looking for one loan, shouldn't have a major effect on your credit score if you secure the loan you want within 30 days.
Inquiries will remain on your credit reports for two years. However, most scoring models only look at those within the past year and will ignore older ones.
Hard inquiries start to add up and do the most damage to your credit score when you open several new accounts in a short period of time. In fact, most lenders also have a cutoff as to how many credit applications they want to see before they approve you for more. This number can be as could be as little as two applications in a six-month span.
Similarly, rate shopping that goes on past that relatively short 30-day window can also have a greater negative impact on your credit score, as that indicates that you're looking at taking on more debt than just a single loan.
THE BOTTOM LINE
While you might not be able to change the type of inquiry, it does give you important information that can help you decide whether or not it's a good time to apply for new credit.
Now that you know the difference between hard versus soft credit inquiries, the question is — how will you use the information to make better decisions about applying for new credit?