Soft and Hard Inquiry Differences Explained
September 3, 2020
When people talk about and work through their credit scores there is often confusion and myths that surround the information they have. It may surprise you to know that when a company makes an inquiry or you apply for a new credit line your credit score is only affected by about 10 percent. Then to make things even more confusing, the inquiries that are made on your credit affect your score in different ways.
There are two main inquiry types that can be made on your credit score. There is a difference between soft and hard credit checks. There are differences between the two types of credit checks.
Soft and Hard Inquiry Differences
The Hard Check
A hard inquiry is made on your credit check when short term loan lenders or credit card companies look at your credit report. This can happen when you apply for a mortgage or any other type of loan. Here are some facts about how soft and hard inquiry differences affect your credit.
- A hard inquiry can lower your score by about five points. It can be higher or lower than the typical five points but that is based on the length of time between credit checks and your current credit history.
- Multiple checks for the same purpose may only count as one credit check. If you are looking to buy a home and have several lenders run your credit, the credit bureaus may count this as one hard inquiry and not multiple hits.
- After 12 months the penalty for hard hits no longer affects your score. The report will continue to show the hit for up to 24 months. At that time the inquiry will fall off of the report and will not be seen by a lender.
The Soft Inquiry
A soft inquiry is a lot better than a hard hit on your credit. For example, when you check your own credit reports during this corona pandemic you have just performed a soft hit on your record. Here are some facts about soft and hard inquiry differences that you will want to know about soft checks.
- As mentioned above, checking your own score is a soft inquiry. By checking your own score you can keep the record accurate and free from error. This will keep you from having to spend thousands of dollars on higher interest rates in the future.
- Pre Approval letters do not hurt your score. They can be annoying as the credit card companies fill your mailbox with offers. But each one has performed a soft inquiry already on your credit score and it did not affect your credit. If you do not like having so many offers in your mailbox, you can contact the company by calling the number at the bottom of the letter and opt-out of future mailings.
- If you have ever applied for a new job, then you have gone through a background check. This is another way that a soft inquiry can be made on your credit report. Companies want to know the truth about who you are so the background check is an easy way to learn more about their potential new employee.
As a consumer, you want to know how your credit report works and know about soft and hard inquiry differences. By knowing how everything fits together you can make intelligent decisions that can affect your credit report so it helps you save money in the future. Credit checks are a constant part of life as a consumer.
It is important to try to keep your credit report clean from soft and hard inquiry differences. If you are deciding to buy a new home or you are personal loan shopping, try to keep lenders from performing a hard inquiry until you are ready for loan approval with the company you have chosen.