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The Difference Between Hard And Soft Credit Pulls: What You Need to Know
Last Updated: February 29, 2024
Your Credit's Silent Influencers: The Hard and Soft of Inquiries
Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.
Ever wondered why applying for a new credit card or loan feels like a tightrope walk for your credit score? Imagine this: You're on the verge of securing that dream home or car, but there's a catch, the application process itself could impact your financial standing. Why? It all boils down to the type of credit inquiry lenders conduct.
In the complex world of credit management, not all inquiries are created equal. Hard and soft credit pulls play distinct roles in your financial narrative, each with its own set of rules and effects on your credit score. However, managing this doesn't have to be difficult or uncertain.
We'll explain hard and soft credit pulls. You'll discover exactly how each type influences your credit score, learn strategies to shield your score from unnecessary hard inquiries, and gain insights on how to tread carefully in your credit journey. So, let's dive in and uncover these mysteries together, ensuring your credit score remains a steadfast ally on your path to financial success.
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What is a Hard Credit Pull?
A hard credit inquiry, often referred to as a hard credit pull, happens when a lender reviews your credit history prior to granting an application for fresh credit or services. This review of your credit history allows them to evaluate your creditworthiness and make a lending decision. Hard pulls are initiated when you apply for loans, credit cards, apartments, utilities, cell phone plans, and other services that require a credit check.
Common examples include:
- Mortgage or auto loan applications
- Student loan or personal loan applications
- Credit card applications
- Apartment or home rental applications
- Applications for utilities like electricity, gas, cable, etc.
- Cell phone contract applications
The key distinguishing feature of a hard pull is that it requires your authorization and permission. The company, financial institution, or lender cannot access your credit report without your go-ahead. For more insights on this topic, you can refer to this U.S. government article.
When you submit a loan application or credit card application, you'll provide written consent for the lender to check your credit. This consent is usually part of the fine print on application forms that you sign.
Hard inquiries can have a small negative impact on your credit score. According to FICO, each hard credit check can lower your score by a few points, typically in the range of 1 to 5 points.
The impact also depends on your starting credit score and profile. If you have excellent credit, a hard pull likely won't damage your score much. But if you have fair or poor credit, the dip could be more pronounced.
Too many hard inquiries in a short period of time could suggest a higher risk to lenders. It may appear that you are desperate for new credit accounts or accumulating your debt-to-income ratio rapidly. As a result, you may face increased difficulty qualifying for new credit if you have a flurry of hard pulls on your report.
Hard inquiries remain on your credit report for two years, but they only affect your credit score for about one year. After that initial 12 months or so, the impact dissipates even though the inquiry itself remains visible This is known as the "hard inquiry time frame." It's a good idea to check your credit score around this time to ensure the hard pull is no longer negatively affecting your credit standing.
What is a Soft Credit Pull?
In contrast to hard credit pulls, soft credit pulls do not affect your credit score at all. A soft pull, also called a soft credit inquiry or inquiry, occurs when your credit report is accessed for information reasons not related to a specific credit application.
Some common examples of soft pulls include:
- Checking your own credit report or credit score
- Pre-qualification checks by lenders
- Prescreened credit card or loan offers
- Potential employers doing background checks
- Landlords screening rental applicants
- Insurance companies checking your eligibility for a policy
The key aspect of these soft credit check pulls is that they do not require your direct authorization. Of course, employers and landlords may disclose that they conduct background checks, but they can initiate soft credit checks without your written approval.
When you check your own credit report, it's always considered a soft pull as well. Monitoring your credit report frequently is essential, and you can do so without any worry of harming your score.
Soft inquiries may or may not show up on your actual credit reports, depending on the credit bureau. But even if they appear, these types of credit checks are invisible to lenders and not factored into your credit score calculations.
The impact of soft credit check loans and pulls on your credit score is best summarized in one word: none. Unlike hard pulls, soft credit checks will never lower your score.
Still, both hard and soft inquiries remain part of your credit history for up to two years before automatically dropping off your reports. The key difference lies in the effect, or lack thereof, on that all-important credit score.
Key Differences Between Hard and Soft Credit Pulls
To summarize the major differences:
| Hard Credit Pulls | Soft Credit Pulls |
|---|---|
| Requires you direct Authorization | Does not requires Authorization |
| Visible to other lenders on credit reports | Not visible to other lenders on credit reports |
| Has a negative impact on credit score | Has no impact on credit score |
| Examples: Loans/ Credit card Application, Apartment Rentals | Examples: Checking your own credit, Pre-approvals, Employer checks |
| Stays on report for 2 years, affects score for 1 year | Stays on report for 2 years but does not affect score |
The takeaway is that hard pulls should be limited to times when you are actively applying for new credit or services that require a credit check. This will minimize the temporary dings to your credit score. Soft pulls can be initiated anytime by others since they have no lasting credit score implications.
Monitoring your credit report frequently via soft checks is recommended to watch for any suspicious activity or errors. But apply for new credit judiciously and avoid accruing too many hard inquiries in a short timeframe.
How Long Do Inquiries Stay on Your Credit Report?
As noted above, both the hard pull credit inquiry and soft inquiries remain visible on your credit report for two years. However, hard pulls affect your credit score for a much shorter duration.
Here is a quick rundown:
Hard inquiries
Remain on your report for 2 years but only affect your scores for about 12 months. After that initial impact, they remain on the report but the effect on your credit score diminishes.
Soft inquiries
Remain on your report for 2 years but have no negative influence on your scores at any point. Checking your credit report frequently allows you to monitor these inquiries and ensure their accuracy.
If you notice a hard credit check you don't recognize, it could be a sign of identity theft and should be dealt with promptly. Keep in mind that while inconvenient and potentially detrimental, the impact of a hard credit check is usually short-lived. As long as you maintain good credit habits, your score will rebound after about a year even though the inquiry itself sticks around for two.
The Rate Shopping Exception for Hard Pulls
When applying for certain types of loans, like mortgages, auto loans, and student loans, you'll likely want to check rates and offers from multiple lenders to find the best deal. This entails multiple hard credit check inquiries in a short period of time.
Thankfully, FICO and VantageScore credit models have a rate shopping exception that prevents these types of inquiries from excessively damaging your credit.
Within a certain window - generally between 14 to 45 days - credit scoring models will count all hard inquiries for the same purpose as just one credit check. This prevents your score from being pinged multiple times for shopping around.
The specific grace period depends partially on the scoring model used:
- VantageScore: Within a 14-day window
- FICO scores: Within a 45-day window
So when shopping for a mortgage or car loan, try to compare all your options within a two-week period. This ensures the credit checks will be bundled and minimize the score impact.
Of course, it's ideal to compare lenders and interest rates with soft inquiries via pre-approval whenever possible. But the rate shopping exception helps if you do need to submit multiple hard applications while finding the best loan terms.
How to Dispute an Unauthorized Hard Pull
Checking your credit report regularly is wise financial practice. Among other things, this allows you to monitor your credit inquiries and ensure their accuracy. If you notice a hard credit check on your report that you don't recognize or did not authorize.
Here are some important steps to take:
Reach out to the creditor
Contact the business or lender that conducted the inquiry. There could be an innocent explanation, such as a case of mistaken identity or clerical error. The company may be able to resolve the issue quickly by retracting the unauthorized credit check.
Dispute the inquiry with the credit bureau
Each credit bureau (Equifax, Experian, TransUnion) has a formal dispute process you can initiate online or by mail. Explain that the hard inquiry was conducted without your permission and should be removed from your credit report. By law, the bureau must investigate within 30 days. If verified as an unauthorized loan amount or hard pull, they will remove it from your credit report.
File a complaint
You can submit a complaint to the Consumer Financial Protection Bureau (CFPB) regarding an unauthorized hard credit check. The CFPB assists consumers in resolving issues with banks, lenders, debt collectors, and other financial companies. Filing a complaint triggers an investigation.
You can also visit IdentityTheft.gov to report identity theft if you believe someone has fraudulently opened credit in your name. The FTC provides a recovery plan for identity theft victims to help restore their credit reputation and good standing.
Disputing unauthorized inquiries quickly is vital to limit any unjust damage to your credit standing. With some persistence and leveraging consumer protections, you can achieve the removal of invalid hard pulls.
How to Minimize the Impact of Hard Credit Pulls
While a single hard credit check causes little harm, accumulating too many in a short period can ding your credit score and make lenders wary. Consider using prepaid credit cards to build credit without the need for hard pulls.
Here are some tips to minimize the impact:
Space out applications
Avoid applying for multiple credit cards or personal loans within a few months. Spread out applications by several months to limit hard checks in a short timeframe.
Check pre-approval options
Many lenders allow you to check your pre-approved rates with a soft pull first. This helps you shop loan payments around with less risk.
Compare rates efficiently
For large loans like mortgages and auto loans, limit hard applications to 2 weeks to benefit from the rate shopping exception.
Boost your credit first
Take time to improve your credit score before applying for new credit. This will help soften the blow of any hard pulls. Pay down debts, make timely payments, and correct errors on your report.
Review credit reports frequently
Regular soft checks on your own credit help you monitor inquiries. Dispute any unauthorized hard pulls quickly to limit the damage.
Limit new credit cards
Every credit card application typically results in a hard pull, so be selective about applying for too many cards at once. Space out applications here as well.
With prudent financial habits, you can enjoy access to credit while also minimizing hard hits to your credit score. As you build and monitor your credit, keep the differences between your soft-pull personal loans, and hard pulls front of mind.
Why Checking Your Own Credit is a Soft Pull
Given how damaging hard credit inquiries can be, you may wonder about checking your own credit report. The good news is that reviewing your personal credit report results only in a soft inquiry that does not affect your score at all. When you order a credit report directly from Equifax, Experian, or TransUnion, this counts as checking your own credit and leads to a soft pull.
Other methods also result in soft inquiries:
- Use AnnualCreditReport.com to check your report from each bureau once per year.
- Ordering a report from a credit monitoring service like Credit Karma.
- Checking the credit score provided by your credit card company or bank.
- Review your report that a lender provides after you submit a loan application.
- Accepting those “free credit report” offers marketed heavily on TV and radio.
As you can see, any method of reviewing your own credit and payment history creates only a soft inquiry. So there is no penalty or downside to monitoring your credit reports frequently.
In fact, it is highly recommended that you check your credit reports often for accuracy and signs of potential identity theft. Until the end of 2023, you can receive your credit reports weekly for free at AnnualCreditReport.com. So take advantage of this opportunity to keep a close eye on your credit.
Frequently checking your own credit only results in more soft pulls that have zero effect on your scores. Be proactive about monitoring your credit history without any fear.
FAQs
Conclusion
Maintaining good credit health requires monitoring your credit report vigilantly. When reviewing your credit history, being able to distinguish hard credit inquiries from soft credit inquiries is crucial.
Hard pulls that result from applications for new credit can cause a small, temporary drop in your scores. Too many in a short period of time can have a negative impact on your ability to qualify for loans or credit cards. It's wise to limit hard inquiries whenever possible.
These soft pulls do not affect your credit score at all, so monitoring your own credit frequently is recommended. Checking your credit report yourself is always a soft pull, so there is no penalty for staying on top of your credit usage and payment history.
By checking your credit report often, disputing any errors, and judiciously applying for new credit, you can minimize the impact of hard inquiries. Your long-term credit health depends on developing wise financial habits over time.
If you are struggling with overwhelming debt and want to explore your relief options, Pacific Debt Relief offers a free consultation to assess your financial situation. Our debt specialists can provide objective guidance to help find the right debt relief solution.
*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content herein does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.
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