What’s the Difference Between a Hard and Soft Credit Inquiry?
You may have heard of hard inquiries and soft inquiries on your credit report but don’t understand what they mean. These inquiries are important to know about because they can affect your credit score — and therefore your ability to be approved for loans and credit cards in the future — but maybe not as much as you think.
Hard and soft inquiries, also referred to as hard and soft pulls on your credit, occur when someone has accessed your credit report. “It’s there so you can see that someone has looked at it,” said Rod Griffin, director of public education for Experian.
If you’re checking your credit report, you may notice the list of inquiries included in your file. Some of the inquiries are listed as being shared with others, such as lenders, potential employers or other people who have been authorized to view your credit report. Those are hard inquiries. Others, the soft inquiries, are listed as being only shared with you.
Although they are mostly used for informational purposes for both you and potential lenders, credit inquiries can sometimes spark fear among consumers who aren’t sure how the notations will affect their ability to get approved for a new loan. They can also cause a fair amount of confusion — particularly among consumers who are worried they’ll be penalized whenever someone views their report.
To avoid any confusion or undue worry, it’s worth getting to know what these terms mean and how they affect you. You may be relieved to learn that, in most cases, these types of notations either have no impact on your credit scores or very little impact at all.
What’s a hard inquiry?
The most important type of inquiry, a hard credit inquiry, is a notation that’s recorded when a lender or other entity, such as a cellphone provider, requests your report before approving your application. According to Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax, a hard inquiry is triggered when you apply for a loan, such as a credit card, mortgage or auto loan, and request some type of credit. For example, if you’re going to finance a car or apply for a mortgage, those lenders will perform a hard pull on your credit.
A hard inquiry will also appear on your report if you buy a new cellphone and the carrier checks your credit before adding you to a new plan. A potential landlord may check your credit using either a hard pull or a soft pull before allowing you to move in. If a car rental company pulls your credit report because you would rather pay with a debit card rather than a credit card, that may cause a hard inquiry to show up on your report.
Also, you’ll trigger a hard inquiry if you ask your credit card issuer for a credit limit increase since that counts, for inquiry purposes, as another application for credit.
The purpose of recording a hard inquiry is to let lenders know that you may have more loans coming, Experian’s Griffin said. “It represents potential new debt that doesn’t show on your credit report yet,” he said.
Unlike soft inquiries, hard inquiries do affect your credit score — but not by much. For example, Jeff Richardson, vice president of communications at VantageScore, said a hard inquiry will typically cause your VantageScore to drop by roughly five to 10 percentage points. Meanwhile, FICO says a single inquiry will usually shave fewer than five points from your FICO Score. That isn’t much, considering that a FICO Score ranges from 300 to 850.
The impact on your credit score probably won’t last very long, either. Generally, hard inquiries stay on credit reports for about two years. But according to Richardson, your VantageScore will likely bounce back within three months. Meanwhile, your FICO Score may stop counting it after about a year.
Your credit score may even improve over the long run if you open a new account since it will lead to more available credit, Richardson said. A larger credit line tends to benefit credit scores, as long as you keep your credit utilization rate low. Your credit utilization rate is the amount of credit you’re using compared to how much credit you have available. Having more available credit benefits your credit score as long as you don’t then ring up higher balances.
A hard inquiry could have a tougher impact on your credit score, though, if you also have a number of other negative items — such as late payments or big debt loads — that are weighing down your score. These are other factors that determine your credit score.
“It depends on the individual,” Griffin said. For example, Griffin notes that if you have less-than-perfect credit, just two or three hard inquiries could significantly impact your credit score since they call into question why you’re so eager for another loan. But if you have a healthy credit score, you may see little, if any, impact from a couple of credit inquiries.
If you’re wanting to improve your credit score before applying for an important loan such as a mortgage, you may want to limit hard pulls on your credit report. But in general, Griffin said hard inquiries aren’t a big factor in credit decisions because other data points — such as your payment history and available credit — paint a much more telling picture. “The thing to understand about inquiries is they are the least important factor,” Griffin said. “They have less impact than anything else.”
Usually, if you’re being declined in part because of multiple inquiries, other factors in your credit report are also dragging your score down, he said. “An inquiry by itself will never be the reason why you’re declined or don’t get the best rates,” he said. “There will always something more important.” (If you’re having trouble with your credit, a credit repair service could be an option, too.)
What’s a soft inquiry?
Like a hard inquiry, a soft credit inquiry also records the number of times that a lender or other entity has looked at your credit. But unlike with a hard inquiry, you’re the only one who can see it.
Soft inquiries also differ from hard inquiries because they don’t have any impact on your credit score. They are solely a record of who pulled your report.
According to Bistritz-Balkan, people sometimes get confused by soft credit inquiries because they aren’t sure how certain inquiries will affect their credit. For example, “there’s a misperception out there that if you check your own credit score, it impacts it,” she said. Similarly, people worry that pulling their own credit reports will cause their credit score to get dinged.
Pulling your own credit report will show up as a soft credit inquiry on your report. Like other soft inquiries, it won’t impact your scores.
Lenders also trigger soft inquiries when they pull a credit report to gauge whether to send you a preapproved offer of credit. Similarly, insurance companies trigger a soft inquiry when they check your credit before offering an insurance rate. So do medical providers and prospective employers.
In fact, soft credit inquiries are so common that Experian’s Griffin said you could see dozens of them on your credit report.
What happens if you have too many inquiries?
If you’ve racked up a ton of hard inquiries without realizing how it will affect your credit score, don’t worry. If you take a break from applying for credit and focus on improving or maintaining a good score, it shouldn’t be long before those inquiries have very little to no effect on your ability to get approved for a new loan.
Depending on why you accumulated them, the spate of recent credit inquiries may not even affect your score much at all. That’s because, depending on the scoring model, credit scores will often forgive a whole bunch of recent inquiries if they all occur at the same time and are for the same type of loan, such as an auto loan, mortgage or credit card.
A large number of inquiries in a short period often signals that you are comparing offers rather than applying for a whole bunch of loans all at once. So credit scores will often automatically take that into account when calculating your score. “Scoring systems recognize that you’re shopping for the best rates when you’re buying a car or buying a house and will only count them as one inquiry or ignore that completely,” Griffin said.
Just make sure to do all of your shopping fairly quickly since the break you get on hard inquiries is limited. Depending on the scoring model, you should have anywhere from 14 days to 45 days to shop around for a home or auto loan and compare rates without getting penalized. According to Griffin, some models may also give you a break for shopping around for credit cards.
The bottom line
Credit inquiries tend to cause a lot of undue anxiety because a hard inquiry can ding a credit score. But the impact is usually so mild and short-lived that it’s not worth fretting over. “Don’t apply for a lot of credit all at once,” Griffin said. “But don’t worry too much about inquiries.”
If anything, look at credit inquiries as a useful record: They tell you who’s checking your credit report and which lenders may be interested in sending you a preapproved offer. A hard pull you don’t recognize can also give you a heads-up if someone is applying for credit in your name.
You can check each of your credit reports once per year, and scan your list of hard and soft credit inquiries through AnnualCreditReport.com.