Table of Contents
- Soft Credit Checks: These are non-intrusive checks often used for pre-approvals and personal reviews without impacting your credit score.
- Hard Credit Checks: These are more thorough evaluations often done when applying for credit, and can temporarily reduce your credit score.
- Hard inquiries typically stay on your credit report for two years, but affect the score for a shorter duration.
- There is a Rate Shopping Exception where multiple hard inquiries within a short timeframe for a certain type of loan, like a mortgage, count as a single inquiry. This minimizes any potential negative impacts.
- If there are unauthorized inquiries into your credit, recognize them and take immediate action to correct them.
What is a Soft Credit Check?
A soft credit check, also known as a “soft pull,” is basically a look into your credit report, but one that doesn’t actually affect your credit score. It is more of a preliminary check, used to give a snapshot of your creditworthiness without going into the details of your credit history. It’s related to but not the same as a hard check, which is a more comprehensive review of your credit, which can impact your credit score. The primary purpose of the soft check is more for a general understanding of the lender of your credit standing.
Soft checks are performed for a variety of reasons. For example, if you have ever received a pre-approved credit card offer or even checked your credit score online, that is a soft pull of your credit profile. Potential employers can also do this during a background check to ensure their new hire isn’t in any form of financial trouble. Another advantage of a soft credit check is that they are invisible to other lenders or entities. They won’t appear on your record as a formal inquiry, and multiple or frequent soft checks don’t negatively affect your chances of securing credit or loans in the future.
A soft credit check isn’t anything to be afraid of. This also means that checking your own credit score won’t hurt it — a commonly misunderstood aspect of credit.
Understanding Hard Credit Checks
A hard credit check we mentioned above, can also be termed as a “hard pull.” This is a more comprehensive inquiry into someone’s credit report, made by lenders or creditors to look into more detail about a person’s creditworthiness. This type of credit check occurs when a person actually applies for a credit product, like applying for a mortgage, a personal loan, or even a new credit card. The purpose of a hard credit check is to allow the lenders to do further due diligence into your financial habits, make a more informed decision when extending you a loan, or determine the interest rate to offer.
Unlike a soft credit check, which is more surface-level, a hard check dives deep into your past financial behavior. Whether trying to get a mortgage, car loan, or even rent an apartment, the lender or landlord will likely use a hard pull. One major difference between a hard credit check and a soft credit check is that hard inquiries can reduce your credit score for a short duration, and multiple hard checks within a short period can negatively impact your credit report. Know the difference between the two to ensure you aren’t accidentally harming your credit.
Hard credit checks typically reduce your score by five points or less. Within a few months, your score should come back up to where it was before the hard inquiry.
The Impact of Hard Inquiries on Your Credit Scores
Every time a hard inquiry is made on your credit report, your credit score likely dips. Typically the drop is temporary and only a few points, but if you continue to make applications for loans and have multiple hard inquiries, it can lead to longer and deeper damage to your credit. The rationale behind it is simple: frequent inquiries indicate that an individual could be experiencing financial distress and is possibly accumulating excessive debt.
The magnitude of the credit damage depends on many factors. The overall credit history, the number of recent inquiries, and the time between those inquiries all play a role. For those individuals with little credit history, a single hard inquiry can have a more pronounced effect than for someone with a long, well-established credit background.
Plan smartly to minimize any repercussions from hard inquiries when making major credit-related decisions. Be selective about where and when you apply for credit, and always be informed about the type of inquiry being performed. You should limit any unnecessary hard checks to ensure your credit score remains high.
How Long Do Inquiries Stay on Your Credit Report?
Hard inquiries tend to remain on your credit report for two years. The impact does diminish after a few months, though. The two-year period is standardized across the credit industry to let lenders view your recent credit-seeking activities within a recent period. Again, this is to let lenders know when there have been multiple credit applications within a short timeframe, as that can be indicative of financial problems or riskier behavior, which would make a consumer potentially less attractive to lenders.
Soft inquiries, on the other hand, do not have the same lasting footprint. Even though they do provide institutions or individuals a snapshot of your credit status, they do not impact your credit score, nor are they visible to potential lenders checking your report. Soft checks don’t factor into any lending decisions.
Being mindful of the number and the timing of hard inquiries is important to ensure your credit score remains in a strong range and maximize your potential for favorable lending terms like better interest rates or more loaned funds in the future.
The Rate Shopping Exception
There is a significant exception to know about with hard checks, and that is the “Rate Shopping Exception.” This is designed to protect consumers from credit score penalties when they are simply shopping for the best loan rates, where they might need to have multiple hard checks against their credit in a short amount of time. For example, when looking for a mortgage, a car loan, or a student loan, it’s reasonable for a consumer to seek out the institution that offers the best rate. Within a specific timeframe, typically 14 to 45 days, multiple hard enquiries related to the same type of loan will only count as a single inquiry for scoring purposes. This allows consumers to have the freedom to shop lenders for the best offers without a negative impact on their credit score.
Remember that not all credit scoring models have the same timeframe for the rate shopping exception. Different scenarios, like mortgage shopping versus car loan shopping, can be subjected to different models. The best practice is to do your rate shopping quickly to ensure you benefit from this exception and shield your credit score from any unnecessary dips.
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Unauthorized Inquiries: What You Should Know
Unauthorized inquiries do happen, as individuals or companies may check your credit report without your explicit consent or even a legitimate purpose. This access can result from administrative errors but can also indicate potential identity theft or fraud. Regularly reviewing your credit report can help battle this to ensure that all listed hard inquiries were initiated by you or were legally justified. If there happens to be an unfamiliar or suspicious inquiry, take immediate action.
Responding to unauthorized inquiries begins by contacting the creditor or company responsible for the unauthorized check to understand any context and possibly rectify the situation. If still unresolved, initiate a formal dispute with the credit bureau that reported the inquiry. Consumers are legally protected against unwarranted intrusions through the Fair Credit Reporting Act (FCRA).
Under the FCRA, credit bureaus must investigate and remove any inaccuracies, including unauthorized inquiries, usually within 30 days. You should consider additional protective measures like credit freezes or fraud alerts, especially if there is any suspicious activity.
Frequently Asked Questions (FAQs)
What is a Soft Credit Check, and Why is it Important?
A soft credit check is a review of your credit report that does not affect your credit score. It is often used for preliminary approvals or background checks.
How Does a Soft Credit Check Differ From a Hard Credit Check?
Both check your creditworthiness, but a soft check doesn’t impact your credit score, while a hard check might temporarily reduce it. A hard check is much more detailed than a soft check.
Why Would Someone Perform a Soft Credit Check?
Soft checks can be for things like employment verification, pre-approval offers, or your own credit monitoring.
Do Soft Credit Checks Affect My Credit Score?
No, soft credit checks do not have any impact on your credit score.
Can A Soft Credit Check Be Seen By Lenders Or Creditors?
No, only you can see a soft credit check. They are invisible to potential lenders or creditors.
What Is A Hard Credit Check, And When Is It Typically Performed?
A hard credit check provides a thorough review of credit history, typically done when applying for credit, a loan, or rental.
How Much Does a Hard Credit Check Affect Your Credit Score?
Hard checks can slightly reduce your credit score for a short period, but multiple checks in a short time can have a more significant impact.
Can A Hard Credit Check Be Done Without Your Knowledge Or Consent?
No, hard credit checks require your explicit consent.
How Long Do Hard Credit Inquiries Stay On Your Credit Report?
Hard credit inquiries typically remain on your credit report for two years.
Can You Request To Have A Hard Inquiry Removed From Your Credit Report?
Yes, if a hard inquiry was unauthorized or incorrect, you can dispute it and request its removal from your report.
Find out more
- Removing Hard Inquiries: Find out how to remove hard inquiries from your credit report.
- Building Credit Knowledge: Gain insights on how to build credit.
- Credit Score Monitoring Services: Explore the best credit score monitoring services.
- Credit Repair Company Evaluation: Review best credit repair companies.
- Credit Repair Costs: Understand the cost of credit repair.
- Challenging Credit Report Items: Learn how to challenge items on your credit report.
- Credit Score Factors: Discover what affects credit score.
- Understanding a Good Credit Score: Know about what is a good credit score.
