Hard vs. Soft Credit Pulls: Everything You Need to Know
When you apply for a new credit card or loan, your bank typically conducts a credit inquiry. However, this isn't the only time you'll be subject to a credit inquiry. Inquiries are also conducted when you request a credit limit increase, for example, or a copy of your credit report.
However, all credit inquiries are different. There are two different types of credit inquiries, and only one affects your credit score.
Here's what you need to know about the differences between soft and hard credit inquiries, how they can affect your credit score, and how long they stay on your credit report.
What is a credit report?
A credit inquiry is simply a review of your credit file. There are two different types of credit inquiries—formal and informal—and each has a different impact on your credit.
Credit inquiries often come from creditors or lenders when you apply for a new credit card or loan, but reviewing your own credit report is also a type of credit inquiry. Credit inquiries are conducted by credit bureaus, which include Equifax, Experian, and TransUnion.
The information a lender may see when conducting a credit inquiry includes a list of your accounts, the dates they were opened, your payment history, credit limits, account balances, and more. Your credit report also includes personal information, such as your current and previous addresses, as well as your current and previous employers.
What is a hard question?
Lenders typically conduct hard inquiries (with your consent) when you apply for a new loan or line of credit. This can include everything from new credit card accounts to car loans, student loans, mortgages, and other types of loans. These requests to review your credit history help banks and other financial institutions make decisions about your application, set interest rates, determine credit limits, and more.
This is the type of inquiry that has the most impact on your credit. Depending on the credit scoring model, a hard inquiry can lower your credit score by up to five points. However, hard inquiries don't stay on your credit report forever, and their impact is temporary.
What is soft inquiry?
A soft inquiry does not affect your credit score. This may occur when a card issuer prequalifies you for a credit card offer, when you check your credit report, or when lenders review the credit history of existing customers, among other things.
Banks often use soft inquiries to determine future credit increases and offer additional products. They may also use this information to change interest rates, lower credit limits, or close an account if a customer's credit score deteriorates. When you check your credit report, a soft inquiry allows you to detect any errors, verify your accounts, and track your payment and account history.
Prequalification is another common reason for a soft credit inquiry. This may involve receiving a prequalification offer in the mail or requesting prequalification through the issuer's website. However, if you are preapproved and then apply for a card, you will be subject to a thorough credit check.
How long do credit inquiries stay on your credit report?
Credit inquiries typically remain on your credit report for up to two years.
In the case of a hard inquiry, its impact on your credit score fades over time. While an inquiry history remains on your credit report for two years, its impact on your credit score is typically greatest within the first six to 12 months. In fact, FICO scores only consider inquiries made within the past 12 months.
How to Reduce Credit Inquiries
Hard credit inquiries typically affect your credit score by less than five points. This isn't a significant impact for a single inquiry, but multiple inquiries within a short period of time can make you appear like a risky student, reducing your chances of being accepted or qualifying for better terms. By reducing the number of credit inquiries, you'll maintain a good credit score and increase your chances of being accepted.
- Apply for credit cards that match your credit history. Check your credit score before applying for any new credit card to ensure you choose cards you're likely to qualify for. For example, if you don't have a good credit history, your chances of getting approved for a student credit card or a secured credit card are much better than for a premium travel rewards card.
- Improve your credit score before applying for credit. Improving your credit score before applying for credit helps you meet the minimum credit score requirements for your desired card. Start by reviewing your credit report for errors, paying off your credit card balances, and making all your payments on time.
- Get pre-approved for a new credit card. Many banks offer pre-approval to help you check your chances of getting approved. With pre-approval, your credit score isn't affected until you apply for the card.
- Don't chase every offer. Credit card offers change throughout the year. Instead of chasing the latest deal, focus on earning rewards that fit your goals and spending. You can maximize your rewards and credit over time by choosing a card that fits your budget and long-term financial plan.
When is a soft credit inquiry used vs. a hard credit inquiry?
Knowing when soft versus hard credit inquiries are commonly used helps you prepare well and minimize any negative impact on your credit score. Here's a summary:
Soft Inquiries
- Reviewing your credit report
- Prequalification offers
- Lender reviews of existing customers' credit
- Credit checks by potential employers or when renting an apartment (this may vary).
Urgent Inquiries
- New Credit Applications
- New Loan Applications (including personal loans, student loans, mortgage loans, auto loans, etc.)
- Requesting a Credit Limit Increase on an Existing Card
- Responding to a Prequalification Offer by Applying for a Card
Frequently Asked Questions: Frequently Asked Questions About Credit Inquiries
How many hard inquiries are considered too many?
Having too many hard inquiries can temporarily negatively impact your credit score, but there is no limit to the number of hard inquiries you should include on your credit report. To minimize the effects of hard inquiries, avoid applying for multiple new lines of credit within a short period of time and consider your eligibility before applying.
Will checking your credit score affect my credit score?
No. Checking your credit score is considered a hard inquiry and will not appear on your credit report. You can check your credit score at any time without any impact.
How Much Impact Does a Credit Inquiry Have on Your Credit Score?
Hard inquiries can lower your credit score by up to five points. However, the impact varies depending on your credit history. Hard inquiries do not affect your credit score, regardless of the number of hard inquiries on your credit report.
Can you dispute a back-end inquiry?
If there is a back-end inquiry that you didn't authorize, you can dispute it. Disputing unknown inquiries, accounts, and addresses on your report reduces fraud and improves your credit rating. It's wise to review your credit report regularly to detect any potential changes that may be fraudulent.