What are soft credit pulls?

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A soft credit pull is a type of credit inquiry that does not affect a person’s credit score and often does not even appear on a typical credit report.

When a business or financial institution checks or “pulls” a person’s credit, an inquiry is usually placed on the individual’s credit record to indicate that a person or company requested a copy of the borrower’s credit report. This inquiry may negatively affect the individual’s credit score, as it may indicate that the borrower is about to obtain additional debts.

The exception is if the credit inquiry is a soft pull – which does not affect the borrower’s FICO credit scores.

Comparing soft pulls with hard pulls

In the consumer credit reporting arena, there are two types of credit inquiries: hard and soft. The standard version recognized by most consumers who have applied for a loan or seen a copy of their credit report is the hard pull or hard credit inquiry. The hard credit pull typically requires the following:

  • Consent from the applicant. The person’s whose credit record is being pulled normally must provide authorization to the lender, creditor or institution requesting the report. There are legal exceptions to this requirement, such as when police officers or the courts are conducting an investigation.
  • Entry in credit record. The hard inquiry will be recorded into the person’s credit record, along with the name of the party ordering the report and the date.
  • Denial letter. If the credit report results in a loan or credit rejection, the lender that ordered the credit report must provide the borrower with a denial letter indicating the reason for the decline.

The above rules do not necessarily apply with soft credit inquiries:

  • No authorization. Because the request doesn’t provide a full report, the borrower does not have to authorize the soft inquiry. In fact, many soft pulls are done without the borrower’s authorization or knowledge.
  • No entry in credit report. The soft pull may not necessarily appear as an entry on standard credit reports – and would not be counted on FICO credit score calculations.
  • No denial letter required. If the soft pull does not result in an approval, the lender or creditor that requested it does not have to provide the borrower with a denial letter.
  • Limited data. Perhaps the biggest difference between soft and hard pulls is the amount of credit data provided to the lender or creditor initiating the soft inquiry. With hard pulls, the party initiating the credit inquiry often receives a detailed credit report, as well as a credit score. By comparison, soft credit pulls provide the lender or creditor with very little credit data on each borrower.

Because no authorization is required, many consumers are subjected to soft credit pulls every year – without ever knowing if and when it occurs.

How does a soft pull work?

One of the common examples of the soft credit pull at work are the “preapproved” credit card and personal loan offers people may receive in the mail. The lenders and creditors who make those preapproved offers are required to stand by their preapprovals – subject to the conditions stated on the offer.

So how do these finance companies, banks and credit unions preapprove a person who has never applied with them?

The answer is through a soft credit pull. Here’s how one way in which a credit card company may process a soft-pulled preapproval offer:

  1. The creditor identifies a target area and obtains a mailing list for that area from a list broker.
  2. The creditor then sends the preliminary list to their credit bureau.
  3. Using preapproval criteria provided by the creditor, the bureau indicates which of the individual recipients on the mailing list meet the creditor’s preapproval guidelines.

The creditor in this scenario has just conducted a soft pull on those preapproved borrowers. The creditor must then make an offer to the individuals who passed their soft-pull credit request.

For the others on the preliminary mailing list that did not pass the creditor’s preapproval criteria, the creditor will not have to make an offer or send them a denial letter. Those non-preapproved prospects won’t even know that a soft pull was conducted on their credit.

Note that in both of the above cases, the creditor receives no credit data about the individuals on the list, except for whether or not they meet the creditor’s preapproval requirements.

How does a soft pull affect credit scores?

Unlike a hard pull credit inquiry, a soft pull will not negatively affect a person’s credit report. As mentioned above, the reason that a hard inquiry will affect a credit score is because it is often an indication that the borrower is about to get new credit or loans – and possibly add more debt.

If the borrower records several hard credit inquiries in a short amount of time, it may be because the borrower is shopping around for the best deal. Or it may mean that the borrower is about to add on a lot of new debt accounts.

A soft pull often happens without the borrower’s consent, as in the “preapproved offer” example above. Also, only a small percentage of these preapproved offers ever result in an actual loan or credit card.

So, credit scoring systems like FICO do not take soft credit inquiries into consideration when calculating credit scores.

Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.

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