Hard vs. Soft Credit Inquiries: What’s the Difference?
Whether applying for a personal loan or interviewing for a new job, at one point or another you have probably been the subject of a credit check. Also known as a credit inquiry, this is a standard procedure that many financial institutions, companies and employers use to gather more information on a consumer’s credit history.
But did you know that not all credit checks are created equal?
There are two main types of credit checks: “soft” inquiries and “hard” inquiries. There are several differences between the two types, from approval requirements, to who conducts them, to how they affect your credit report. Let’s run the through the definitions and a few examples for each type of credit check.
What Are Soft Inquiries?
Soft credit inquiries can be made without your permission, and while they may appear on your credit report, they will not negatively affect your credit score.
There are several common scenarios for soft credit checks:
- When you check your own credit score
- When an employer checks your credit score
- When you are pre-approved for credit cards or loans
What Are Hard Inquiries?
A hard inquiry happens when a prospective lender, financial institution or credit card company reviews your credit history in order to make a lending decision. In most cases, the consumer must actually authorize hard credit inquiries, either via verbal or written consent. Unlike a soft inquiry, a hard inquiry can lower your credit score by a few points and can remain on your credit report for up to two years. Eventually, the credit score dip caused by that check will fade away and the inquiry will disappear from your credit report.
There are several common scenarios for hard credit checks:
- When you apply for a car loan and the lender checks your credit
- When you apply for a mortgage and the bank or lender checks your credit
- When you apply for a credit card and the company checks your credit
There are also some scenarios that, depending on the circumstances, could qualify as either a hard or soft credit inquiry. For example, the credit checks that are performed when you apply to rent an apartment, apply for a cell phone contract, or apply to open a checking or savings account could all be classified as either soft or hard inquiries.
For more information on the effects of credit inquiries, see the article, “Do Credit Checks Hurt Your Credit Score?” For a detailed review of hard and soft credit pulls, check out the Hard Credit Pull and Soft Credit Pull glossary pages.
If you notice a hard inquiry on your credit report that you did not actually approve, you can file a dispute by writing a letter to the Federal Trade Commission. You can and should examine your own credit regularly in order to check for these and other errors. To download a free copy of your credit report, visit AnnualCreditReport.com, a site set up by the three largest credit reporting agencies in the United States.