Credit Scores: Hard Inquiry vs. Soft Inquiry

What Happens to Your Credit Score With a Hard Inquiry vs. a Soft Inquiry?

Before you begin your journey to homeownership, it’s important to up your credit score knowledge. Credit scores play a crucial role in many financial decisions, and understanding how and why your score may fluctuate is important. Let’s talk about what credit scores are and what these different inquiries mean.

What Is a Credit Score?

A credit score is a full analysis of a person’s financial life that measures how creditworthy they are. Credit scores range from 300-850; these numbers are typically sourced from your credit report by any combination of the three credit bureaus (Experian, Equifax, and or TransUnion).

Credit scores are used to determine how likely someone is to pay back a loan based on their past credit history. The examination of your credit history allows credit bureaus to calculate the amount of risk associated with lending to you based on the overall state of your finances.

How Are Credit Scores Used?

Your credit score impacts more than just your mortgage eligibility. Pursuing any of the following will likely require you to share your credit score:

• A mortgage loan

• Credit cards

• Auto loans

• Insurance

• Other lines of credit

Companies can use one of two methods to check your credit report: a soft inquiry or a hard inquiry (also known as a soft pull/soft credit check or a hard pull/hard credit check). You'll be able to see both soft and hard inquiries on your credit report.

What Is a Soft Inquiry?

Soft inquiries are often the type of credit check used when conducting a background check, processing preliminary mortgage/credit card applications, and even examining prospective employees in the hiring process. Additionally, soft inquiries are used when:

• Checking your own credit score

• Receiving “pre-qualified” loan, credit card, and insurance offers

• Verifying your employment history

Soft inquiries do not affect your credit score because they aren’t an indicator of greater risk for lenders.

Pro Tip: You can check your credit score for free through Credit Karma as often as you’d like!

What Is a Hard Inquiry?

Hard inquiries occur when a financial institution checks your credit to make a lending decision. These financial institutions include lenders and credit card issuers, and you typically have to authorize a hard pull, so don’t worry about it happening out of the blue. (According to LendingTree, “an unauthorized hard inquiry could be a sign of attempted identity theft,” so reach out to the lender and the credit bureaus if notified about a hard pull you didn’t authorize.)

Curious about which circumstances require a hard inquiry? We’ve provided some examples below:

• Mortgage applications

• Auto loan applications

• Credit card applications

• Student loan applications

• Personal loan applications

• Apartment rental applications

Keep in mind that utility, cable, internet, and cellphone services may also want to check your credit. If you’re not sure what type of credit check they’ll use, don’t be afraid to ask!

Hard inquiries can lower your credit score by a few points, which is considered a negative impact on your score. Don’t worry, though! Even if a hard credit check dings your credit score, the penalty will usually decrease or disappear once the specific inquiry drops off of your credit report. For reference, most hard credit checks only stay on your credit report for two years.

In addition to the light consequences associated with a single hard credit check, be wary about requesting multiple hard pulls within a short period of time. Some lenders consider this behavior to indicate you might be a high-risk customer since it suggests that you might be on the way to racking up a lot of debt or are short on cash. As such, we recommend trying to spread out your credit and loan applications as much as possible.

No matter who you are, having a basic knowledge of credit scores, hard vs. soft inquiries, and how they work will help you better understand your personal finances and the lending options available to you. If you’re interested in improving your credit score, check out this step-by-step guide from Experian!