When applying for credit, you may notice both hard and soft inquiries appearing on your credit report. While related, these two types of inquiries differ in how they impact your credit score. As a finance journalist with over a decade of experience, I will explain the key differences between hard and soft credit inquiries, providing an in-depth analysis of how each affects your creditworthiness.
What Is a Hard Inquiry?
A hard inquiry, also known as a hard credit check or hard pull, occurs when a lender examines your credit report in detail prior to approving your application for credit. Hard inquiries provide creditors insight into your creditworthiness when you apply for financial products like credit cards, auto loans, mortgages, and personal loans.
Essentially, hard checks mean the lender is examining your creditworthiness in detail before extending credit. Here are some common examples of when you can expect a hard inquiry on your report:
- Applying for a new credit card or loan
- Refinancing or taking out a mortgage
- Leasing or financing a car
- Applying for utilities like electricity, gas, or cable/internet
Essentially, any application requiring a lender to thoroughly assess your credit risk will likely involve a hard credit check. These inquiries indicate you are actively seeking new lines of credit.
What Is a Soft Inquiry?
In contrast, soft inquiries, also called soft pulls or soft credit checks, only require a surface-level review of your credit report. Lenders use soft inquiries to verify your identity or prescreen you for pre-qualified offers. Unlike hard inquiries, soft checks do not affect your credit score.
Common soft inquiries include:
- Checking your own credit report
- Getting preapproved for a credit card
- Potential employers checking your report as part of a background check
- Existing creditors monitoring your ongoing creditworthiness
- Credit card companies sending pre-qualified offers by mail
- Landlords reviewing your rental history
Essentially if no request for additional credit is being made, it will likely show up as a soft inquiry. These routine checks help maintain the accuracy of your report.
How Do Credit Inquiries Affect Your Credit Score?
The impact of hard inquiries on your credit score is relatively small but worth noting. Each hard check can lower your score anywhere from 0 to 5 points depending on your individual credit profile. Those with limited credit history tend to experience a greater negative impact from additional inquiries.
However, FICO offers some protections when rate shopping. If you apply for a mortgage, auto loan, or student loan with multiple lenders within 45 days, FICO will group these together and count them as a single hard inquiry. This prevents your score from plummeting just for searching for the best rate.
While five points may seem minor, it can be the difference between qualifying for an excellent rate versus a good rate. Excellent credit unlocks the most favorable interest rates which can save you thousands over the loan’s lifetime. Monitoring inquiries helps minimize any unnecessary dings.
Can You Avoid a Hard Inquiry?
When it comes to applying for new credit, hard inquiries are an inevitable part of the process for most people. But strategic credit management can help minimize how much they ding your score.
First and foremost, know your current credit standing before applying for new credit. Rushing into applications blindly is like taking a test without studying – you’re probably not going to be happy with the results. Take the time to check your credit score so you know whether you’re realistically within striking distance for approval. Applying for credit well out of your reach almost guarantees rejection and unnecessary hard inquiries.
Next, be patient and space out applications over time. This gives your score a chance to bounce back before pursuing new credit. A common mistake is cramming multiple applications together in a short period to try and save a few bucks with promotional financing. While tempting, this credit version of cramming for exams can lead to short-term savings but long-term score damage. Allow at least 6 months or more between applications whenever possible.
Alternatively, consider pre-approval checks which may only require a soft pull without the hard hit of a formal application. If the pre-approval odds look good, you can move ahead with the full application knowing your chances are strong. If the pre-approval is declined, you avoided the unnecessary hard inquiry so your score stays intact. It’s a win-win using pre-approvals wisely.
Lastly, monitor your credit report regularly. This helps you address any errors or discrepancies quickly before they snowball into unnecessary inquiries down the road. Remain proactive about checking your reports frequently to catch issues early.
While not always avoidable, strategic credit management keeps hard inquiry impacts to a minimum. Do your credit homework, space out applications thoughtfully, use pre-approvals to test the waters and monitor your report routinely. With a careful approach, hard inquiries don’t need to sink your score.
How Long Do Hard Inquiries Stay on Your Credit Report?
When it comes to credit, sometimes it’s the smallest details that matter most. Hard inquiries are a prime example. These little score dings stick around on your full credit report for two years. But here’s the catch – they only impact your actual FICO credit score calculations for 12 months.
This distinction is critical. The inquiry itself may still be visible to lenders for two years, but after 12 months, it’s essentially ignored by FICO’s formulas. So while it remains on your full credit report, it no longer directly lowers your score. Think of it as a scar versus an open wound. The scar remains, but the worst pain is in the past.
However, having a report littered with too many recent inquiries can still influence lenders, even if they no longer hurt your score. Multiple hard inquiries stretching back 24 months may indicate risk to lenders reviewing your entire credit history manually. Too many “inquiry scars” raise questions, even if the “wounds” have healed score-wise after 12 months.
The takeaway is inquiries stop negatively impacting your score after a year, but keeping hard checks limited even during months 13-24 has advantages. Aim to keep hard inquiries to a minimum with prudent credit management across the full two-year reporting period. Patience pays dividends.
Also Read: How to Dispute a Credit Report Error
How to Dispute Credit Inquiries
Despite your best efforts, inaccurate or fraudulent hard inquiries can sometimes slip through the credit reporting cracks. When they do, it’s important to dispute these promptly and assertively.
First, request your full credit report so you can review all inquiries from the last two years. Flag any that appear suspicious or that you don’t recognize. Make note of key details like the date, company, and account number associated with the inquiry in question.
Next, draft a dispute letter to the relevant credit bureau clearly indicating the inquiry is inaccurate. Reference section 611 of the Fair Credit Reporting Act in formally requesting an investigation within 30 days. Provide copies of any evidence that can validate your dispute claim. Certified mail provides delivery confirmation.
If the inquiry remains unchanged after 30 days, persist with your dispute until it is removed or otherwise resolved accurately. This is your credit profile, so you have full rights to insist on the correction of errors damaging your score. Don’t let false inquiries sink your creditworthiness.
Staying vigilant about monitoring your credit report helps identify any suspicious activity before major damage occurs. Don’t allow your credit profile to become burdened by faulty inquiries you have the power to correct.