Hard vs. Soft Credit Inquiries: Do They Affect Your Credit Score?

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Your credit reports are managed primarily by Equifax, Experian, and TransUnion. Your credit history, such as on-time or late payments and other activity, is in your credit reports and visible to anyone conducting a credit pull on you.

For example, when you’re ready to apply for a mortgage, a lender will check your credit reports to verify your FICO credit score.

In some cases, that will create a minor ding on your score, but not always. It depends on whether the inquiry is a hard inquiry or a soft inquiry. Here’s what the difference between the two means.

Hard Inquiries

A hard credit inquiry (sometimes referred to as a pull) happens when a third party, such as a lender, bank, or credit card provider, requests to view your credit reports after you apply for a new loan, rent an apartment, or apply for a credit card. Hard pulls may also occur with credit limit increases, activating utility services, or new cell phone contracts.

Taking on too much new debt or credit makes you more likely to struggle to pay your bills on time. This makes you a riskier borrower, which is why hard inquiries cause your credit score to drop.

The good news is that hard inquiries have only a small effect on your credit score. Most credit experts believe that a hard inquiry will only cause your credit score to drop by five points at the most.

And this drop is only temporary but possibly as long as two years. A five-point drop is a small hit overall since the FICO scale ranges from 300 to 850.

Hard credit inquiries can only be made with your permission, unlike soft inquiries, which can be made without your permission. 

Getting a hard inquiry on your credit report occasionally isn’t a big deal because your credit score will rebound, and the inquiry will roll off. You’ll need to be careful not to apply for too many credit cards or other forms of credit in a short timeframe, which can negatively affect your FICO score.

Regularly checking your credit reports for any errors and unusual hard credit checks is important. If a hard pull was performed without your consent, it could be attempted identity theft. In those cases, contact the creditor in question, file a complaint with the reporting agencies, and consider filing a complaint with the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission.

Soft Inquiries

A soft credit inquiry usually happens when you request a copy of your own credit reports. Or when a credit card provider or lender checks your credit to determine if it’s strong enough to qualify for a loan or credit card they want to sell to you.

Think of soft inquiries as preapprovals. Previous soft pulls are visible on your credit report only to you, whereas hard inquiries are publicly visible.

A soft inquiry does not impact your FICO score because you are not actually applying for more debt or credit.

Inquiries When You’re Shopping for a Home Loan

Borrowers applying for a mortgage should shop around with different lenders to ensure they get the lowest rates and fees. That leads to the question of how all these inquiries will impact your credit score.

You might think that applying for several loans at once triggers several hard inquiries. However, home loans are an exception.

The FICO credit-scoring model doesn’t punish consumers who shop around for the lowest interest rates. That’s because credit monitoring agencies understand that shopping for loans is a rational move when you’re in the market for a big-ticket item like a new car or home.

Credit-scoring models take this into account and will treat a cluster of hard pulls for this purpose as a single inquiry.

It’s obvious that you’re shopping around for the best rate. You won’t be taking out five mortgage loans. You’ll be taking out just one, even if five different lenders are checking your credit.

Just make sure you do this rate shopping within a relatively short time. The FICO credit-scoring model allows you to group several auto, student loan, and mortgage inquiries into one inquiry as long as they’re done within a 15 to 45-day window.

If you want to improve your credit score before applying for an important loan such as a mortgage, limiting hard pulls on your credit report is a good idea.

Credit Cards Are Different

If you apply to five credit cards in three weeks, those hard inquiries will be counted as five separate inquiries, not one. That’s because you might apply for five new credit cards.

And if you get those cards, you’ll dramatically increase the amount of credit card debt you can run up, making lenders nervous.

In this case, multiple hard inquiries in a short period can take a serious toll on your credit scores.

David Mully

David Mully is president and CEO of Lender Insider, a mortgage consulting firm. With 26 years in the mortgage industry, he has worked as both a mortgage loan officer and in the business-to-business sector of the industry. He is the former author of the weekly “Mortgage Search” column for Observer and Eccentric Newspapers. You can read his blog at http://www.lenderinsider.com/blog.

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