Checking your credit score isn’t as easy as checking your bank account balance. It requires careful consideration of hard and soft inquiries, two different types of credit inquiries that can vastly impact your overall score.
Understanding the difference between these two types of inquiries will help you manage your credit score and make more informed financial decisions when buying a home.
Read on to learn more about the difference between a hard and soft inquiry and why it is crucial to understand the difference.
A hard inquiry is a type of credit inquiry that appears on your credit report when you apply for a loan, credit card, mortgage, or another form of financing. When a lender requests a copy of your credit report in order to determine whether to approve or deny a loan, it triggers a hard inquiry. Hard inquiries can stay on your credit report for up to two years and could hurt your score in the short term.
Also called “hard pulls” or “hard credit checks,” these inquiries are initiated by lenders and creditors assessing your borrowing risk. These include mortgage lenders, auto loan financiers, credit card issuers, and insurance companies. These lenders will first need your consent before performing a hard inquiry.
A few examples where hard inquiries may be required include:
A soft inquiry is a credit inquiry that will not affect your credit score. It occurs when lenders, landlords, employers, and other entities review your credit report to assess your financial credibility without actually applying for financing. These inquiries are called “soft pulls” or “soft credit checks.”
Soft inquiries may or may not show up on your credit report and will be visible only to you and not to lenders. As a result, they will not impact your credit score.
Here are some examples of a soft inquiry:
While both hard and soft inquiries are types of credit checks, there are critical differences between the two that you need to consider.
The most significant difference between the two types of credit inquiries is their impact on your credit score.
Soft inquiries will not affect your credit score, while hard inquiries may lower your score by a few points. The impact is typically minimal, and your credit score should bounce back within a few months.
However, if you have multiple hard inquiries in a short period, it can signal to lenders that you’re seeking more credit than you need, which could adversely affect your score. Lenders see having multiple hard inquiries on your credit report as a risk factor and may be less likely to approve your loan application. Should your application be approved, it may be difficult for you to qualify for the best rates and terms on loan products.
The purpose of the inquiry is also different. Lenders initiate hard inquiries when you’re applying for a new credit, loan, or mortgage. This is to assess your creditworthiness and borrowing risk, deciding factors in your application’s approval.
On the other hand, soft inquiries are made to verify your financial reliability for non-lending purposes. Employers, landlords, or potential insurers usually use these inquiries to check if you can be trusted as an employee, tenant, or policyholder.
Lenders will need your consent before they can start a hard inquiry. This means you must permit the lender or creditor to check your credit report before they can do so, and this usually involves signing a credit report authorization form.
In contrast, soft inquiries do not require consent and can be done without your knowledge. This is because these inquiries are not used for financing applications and are intended only to verify your financial standing.
There’s nothing to worry about with soft inquiries since they don’t impact your credit score. However, if you have a financing application that requires a hard inquiry, there are a few steps you can take to ensure that your application is successful and doesn’t hurt your credit score.
Before you give the lender permission to pull your credit history, ask them for details about their inquiry process. Make sure they use soft inquiries if possible or only make a hard inquiry if necessary.
This allows you to ensure that the lender knows the impact a hard inquiry can have on your credit score. It also helps you make an informed decision about whether to proceed with the application.
You need to keep your hard credit checks to a minimum. It’s best to spread out the inquiries over time so lenders don’t think you’re applying for too many loans or credit cards at once. If you already have multiple hard inquiries on your report, you should wait until they expire before submitting another application.
For rate shoppers, hard inquiries may be unavoidable. Fortunately, FICO ignores hard inquiries made in the last 30 days before scoring, meaning the inquiries will not affect your score if you find a loan within 30 days. They may also record multiple inquiries as a single inquiry if they’re for the same type of loan made within 14 or 45 days.
You should always review your credit report to check if an inquiry was made. You can get a copy of your credit reports at AnnualCreditReport.com. You can also dispute any incorrect or unauthorized inquiries with the credit bureaus, which could indicate identity theft. This doesn’t just help protect your credit score but also protects you from potential fraud and identity theft.
Your credit score and overall creditworthiness play vital roles in your financial health. Understanding the difference between hard and soft inquiries allows you to make informed decisions on financing applications with minimal damage to your credit score.
Be sure to ask your lender, minimize hard inquiries, and cross-check credit reports to protect your credit score and financial well-being. By following these steps, you can buy a home more securely and without hassle.
Are you interested in getting a mortgage?
When you apply for a mortgage with ASTAR Home Capital, the first thing we do is run a soft inquiry to see if you prequalify so you don’t have to worry about it impacting your credit score. We only do a hard inquiry after you’re already preapproved, the necessary documentation has been received, and you are ready to proceed with the next stage of the process.
Reach out to an ASTAR Home Capital today! firstname.lastname@example.org or 888-ASTAR-11 (888-278-2711) to begin the mortgage process today!