You’ve heard of the terms “soft credit inquiry” and “hard credit inquiry” over the years, and you might be wondering, what do those terms mean? How are they different from each other? Read ahead to get those answers.
What’s the Difference Between Hard and Soft Inquiries?
Both inquiries have a lot of similarities. They both involve an investigation of your credit information, and they are both recorded in your credit report. According to the credit bureau Experian, inquiries will sit on your report for approximately two years before being wiped from the record.
The main difference? A hard inquiry can also lower your credit score. This effect will be minimal — your score won’t drop very dramatically, and it will only last for a short period of time. This doesn’t mean that you should ignore the consequences of a hard inquiry! The more hard inquiries you encounter, the more damage you will do to your score. To protect your score, you should do your best to minimize the number of hard inquiries taken against you.
When Do You Get a Soft Inquiry?
You might not realize it, but when you check your own credit score, you’re doing a soft inquiry. Checking your own credit is a good habit to keep so that you can monitor your credit score and see whether there is any room for improvement.
You can experience a soft inquiry when an employer runs a background check on you. Employers tend to do this for applicants that are looking to fill positions that require financial responsibility (for example, an accountant role). They’ll want to look at your credit report to see whether you have personally been responsible with your credit and that you can be trusted to handle funds accordingly.
What other times could you face a soft inquiry?
• When a credit card issuer wants to preapprove you for an offer
• When you are applying for a bank account
• In some cases, when you’re applying to rent an apartment unit
When Do You Get a Hard Inquiry?
A hard inquiry is when a financial institution, whether it is a bank or other loan provider, needs to access your credit report in order to assess the risk of approving your application for a loan.
For instance, you are likely to receive a hard inquiry when you are house hunting and are trying to apply for a mortgage loan. The state of your credit report will directly influence your ability to get a mortgage approval. Many lenders will not approve a mortgage loan for a client whose credit score is below the Good range. If your credit score is below that range, you should consider looking into first-time homebuyer government programs. These do not have the same credit score requirements.
Another example of when you’ll receive a hard inquiry is when you’re applying for a personal loan. Say that you’re hit with an emergency expense, and you don’t have enough savings to pay for it. You decide to go to the website CreditFresh to apply for a personal loan in order to use temporary funds to manage the emergency. Submitting an application for an online loan is a circumstance that could lead to this type of inquiry.
What other times will you receive a hard inquiry?
• When you apply for a new credit card
• When you apply for a new auto loan
• In some cases, when you are applying to rent a new apartment unit
Minimizing the Impact of Hard Inquiries
You can lump your hard inquiries together. Multiple hard inquiries are counted as a single inquiry when they’re done in a brief window (this is typically within 45 days of each other). So, you will only face one penalty on your credit score — not several. This window allows people to “rate shop” when they’re applying for mortgage loans and auto loans.
You should know that this window does not count when you’re applying for new credit cards. Every hard check for the sake of a credit card application will affect your credit score. This is because applying for multiple credit cards in a short period of time is considered risky behavior by creditors.
Not all credit inquiries are the same. Know the difference between them for the sake of your credit score.
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