How is hard inquiry different from soft inquiry?


Are you confused between a hard inquiry and a soft inquiry? Do you have any idea how a hard inquiry or a soft inquiry affects your credit report? If no, then stay tuned and read this post to clear your confusion before a credit pull.

When does a credit inquiry is triggered?

A credit inquiry is usually triggered when any business entity, bank, financial institution, lender, potential employer, or you check your credit report for various reasons.

Typically, a credit inquiry can be divided into two categories. The first one is the hard inquiry, and the second one is the soft inquiry.

When is a hard inquiry triggered on your credit report?

A hard inquiry is triggered when a lender or a financial institution pulls your credit report. When you apply for a loan or a credit card or a home loan, the lender pulls your credit report to know if he should approve your loan application. The lender checks your credit report with your prior permission. It is an integral part of the approval process. Of course, you can refuse to give the authorization. But in that case, the lender is less likely to issue a loan.

Credit card applications, home loan applications, requests for increasing the credit limit, etc. may trigger a hard inquiry.

When is a soft inquiry triggered on your credit report?

A soft inquiry is triggered when someone checks your credit report without having any intention of making any lending decision.

A soft inquiry can stay on your credit report for as long as two years after it is triggered.

A soft inquiry usually happens under three circumstances, and they are:

1. When you pull your credit report

You should check your credit report once every quarter. This is what the financial experts recommend. It helps you to know what happened to your credit report after paying off debt, what is the status of your accounts, how many errors are there (if any), how many late payments are there in your report, and so on.

So, when you pull your credit report to check your credit health, a soft inquiry is triggered on your credit report. Before buying a house, you should check your credit report once and know if your credit is in perfect shape. If it isn’t, then you can get time to build credit, and get an affordable loan.

2. When a potential employer does a background check

Many employers want to look at your credit report as the standard employment background check. They want to know if you are financially responsible, especially for the jobs where you have to handle sensitive information of the company. For example, if you are an accountant, then the potential employer would like to see if you can handle your finances responsibly. If you can’t manage your money like a pro, then how would you handle the financial department of the company?

Employers would take your consent before checking your credit report. So, you would know about it beforehand.

3. When a bank wants to give you a pre-approved credit cards

Tired of receiving pre-approved credit card offers in your mailbox? Well, you should never think that banks send pre-approved credit card offers out of love for you. They make a soft inquiry on your credit report before sending you an email. If you show interest, then they will make a hard inquiry on your credit report. Now, why does it happen? Why would they again trigger a hard inquiry?

A soft inquiry does not give detailed information. One can get in-depth information only from a hard inquiry.

How does a hard inquiry affect your FICO score?

A hard inquiry stays on your credit report for two years and can drop your credit score by 5 points. Hard inquiries make a greater impact on your FICO score when you have a short credit history. So, if you bought a home last year, try to avoid taking out a new loan now since you have a short payment history.

However, the negative effect goes away with time.

It is not always possible to avoid hard inquiries on your credit report. When you are shopping for a home loan or a student loan, you have to shop around for getting the best deal. However, multiple hard inquiries are not good for your credit report and score. Too many hard inquiries mean you are dependent on credit, and lenders view you as a risky borrower.

There is one way to tackle this critical situation without hurting your credit score. What you have to do is make your inquiries for a home loan or an auto loan or a personal loan within 30 days to 45 days. This time is considered a ‘rate shopping’ period. When you do so, all the hard inquiries are considered as a single query on your credit report.

How does a soft inquiry affect your FICO score?

A soft inquiry does not hurt your FICO score. So, you can check your credit report as many times as you want. Usually, you can check your credit report from without paying a penny once every year. However, in 2020, you can check your credit report for free due to the pandemic. This option is available until March 2021.

Stacy B. Miller is a writer, blogger, and a content marketing enthusiast. Her blog vents out her opinions on debt, money and financial issues. Her articles have been published in various top-notch websites and she plans to write many more for her readers. You can connect with her on Facebook and Twitter.

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