Credit Pulls: Hard Inquiries vs. Soft Inquiries

Credit Pulls: Hard Inquiries vs. Soft Inquiries

Out of the many factors that affect your credit score, credit inquiries, also known as credit pulls, are far from being first on the list. you can attain a good credit score simply by paying your bills on time and keeping your balances as close to zero as possible, regardless of how many inquiries you’ve had. But credit pulls aren’t completely insignificant, either. They fall under the category of “new credit,” which accounts for about 10% of your credit score, and they can have greater impacts when potential lenders are considering your application for credit. Here, we explain the difference between soft inquiries, which have virtually no effect on your credit score, and hard inquiries, which can negatively affect your score:

Soft Inquiries (Soft Pulls)

A soft inquiry occurs when a person or company checks your credit score as part of a general background check. In these situations, the inquirer is not in the process of deciding whether or not to provide a loan. Instead, they are looking into your credit to assess your character or to see if you “prequalify” for a loan.

Potential landlords or employers will often check your credit score before renting out a home or hiring you. You also might be curious to see what your own credit score is before deciding to apply for a loan or a credit card. In each of these cases, these inquiries are not directly related to an actual loan application, which means that your credit score goes unchanged. These are therefore “soft pulls” of your credit history. Your records are being “pulled” out of the cabinet to assess your creditworthiness, but it’s not necessarily because you need or have asked for a loan.

There are instances in which you might not even be aware of a soft inquiry made into your account. When you receive an unsolicited “Special Promotional Offer” in the mail, for instance, from a credit card or insurance provider, chances are good that the company that sent you the letter has already made an inquiry to see if you’d pre-qualify for the line of credit. Depending on which credit bureau is used, a soft inquiry could show up on your credit history, but it will never affect your credit score, since there was no point when you actively requested a loan.

Hard Inquiries (Hard Pulls)

A hard inquiry or a “hard pull” occurs when you are specifically requesting a new line of credit, whether it’s in the form of a rewards card or a new mortgage. Since they’re supposed to be prompted by a request for a loan that you made, there should be no hard inquiry on your history that you don’t already know about.

Though they have more impact than soft pulls, hard inquiries still don’t have that much effect on your credit score—at worst, a hard inquiry will dock your score by 5-10 points, and it won’t stay on your history for more than two years—but they can still play a vital role in determining whether or not you’re approved for a particular loan. If a prospective lender sees that multiple hard inquiries have been made into your credit history over the course of the past few months, for instance, they might choose not to approve your application even if you have a great credit score or if you already pre-qualified for the same loan. Since a hard inquiry only happens when you apply for a loan, multiple hard inquiries could suggest a state of financial turmoil or desperation.

Lenders only want to do business with people who they’re confident will pay back what’s owed in due time. That means they’re much likelier to have second thoughts if it looks like a customer is preparing to rack up a lot of debt because they’ve opened (or tried to open) several new accounts in the past few months. If more than four hard inquiries have been made into your account in the past two years, you might want to think twice about applying for that new travel rewards card.

Rate Shopping

Hard inquiries are not great, but there are some safeguards in place to make sure your score isn’t excessively docked by them, particularly when you’re rate shopping. If you’re in the process of looking for a mortgage, student or auto loan, for example, the major credit bureaus will take note, and all hard inquiries that fall under the same loan category will be consolidated into a single inquiry, as long as all the applications were all made in a certain window of time (typically 14 to 45 days). Credit bureaus are aware that you probably only need one auto loan or mortgage, which means they can tell that you’re not actually looking into two separate loans even if you’ve filed multiple applications.

Ambiguous Cases

There are some cases in which it might be hard to tell if a credit inquiry will be hard or soft: though rare, some apartment rental applications do trigger hard inquiries, and there are some circumstances in which pre-applying for a loan could result in a hard pull. Utility, cable, and phone service providers will also do credit checks before opening an account for you—usually, these are soft inquiries, but not always. If you’re ever uncertain, ask the prospective lender what type of inquiry they’ll be making on your credit account. There’s no harm in asking, and you’ll know what you’re getting into as soon as you hear back.

How to Dispute Unrecognized Hard Inquiries

It goes without saying that everyone should regularly check their credit history to make sure there’s no fraudulent activity occurring in their name. If in the process of looking through your history you notice a hard inquiry you did not authorize, then you should immediately contact the credit bureau and the credit issuer who made the inquiry to gather more information. The inquiry could be the result of an administrative error on the lender’s part or, worse, a case of identity theft. It’s important to take action as soon as you notice an unrecognized hard inquiry so that you can start the dispute process. In this article, we provide a comprehensive guide for fixing every type of problem and error on your credit report.

The Bottom Line

Though soft and hard inquiries don’t have too much effect on your overall credit score, it’s still important to keep track of them while you try to build your credit history. Do what you can to minimize your hard inquiries so that you can qualify for the lines of credit you deserve, and don’t sweat the small stuff when a company is trying to make a soft inquiry into your account. By only applying for credit cards and loans you truly need instead of applying for any good deal that rolls along, you’ll keep your hard inquiries down and maximize your chance of approval on your next major loan application.

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