It’s more about its impact on your credit score
What is the difference between a soft and hard inquiry?
Soft Inquiry Hard Inquiry
Does not affect your credit score Affects your credit score
Conducted by creditors to provide pre-approval offers Conducted by creditors and lenders when applying for credit or a loan
Can be done without your consent Must give written consent
Impact on credit score
A soft inquiry does not affect your credit score. Although a soft inquiry appears on your credit report, it can only be seen by you.
A hard inquiry lowers your credit score by a few points, although this will not be significant in the long run. However, multiple hard inquiries in a short period of time may give lenders the impression that you are a high-risk borrower.
Note: Hard inquiries stay on your credit report for up to two years, but they typically only affect your credit score for one year.
When is an inquiry used?
Soft inquiries on your credit are pulled all the time, for example, when you receive a credit card offer in the mail, when a potential employer conducts a background check, or when you check your own credit.
While soft inquiries can happen without your knowledge, such as those pre-approved credit card offers you receive in the mail, a hard inquiry occurs when you apply for a loan or credit card or mortgage, and the lender checks your credit history before approving or denying the loan.
Consent
Regarding determining whether an inquiry will be hard or soft before it occurs, you are likely to know when a hard inquiry happens because you will have to give your consent to the lender.
For example, if you have purchased or leased a car in the past, you were asked to sign a credit report authorization form as part of the paperwork. By signing this document, you give the finance department of the dealership permission to pull your credit. In other words, you are giving them consent to conduct a hard credit inquiry.
Note: Even though multiple hard inquiries can make you seem like a credit risk, credit agencies understand that many inquiries in a short time can be due to “rate shopping.” The agencies will consolidate those inquiries, such as those coming from several mortgage lenders if you are looking for a home loan, into one hard inquiry on your report.
What to do before an inquiry
If you are concerned about potential hard inquiries and their impact on your credit score, you have some options. First, before applying for any major loans, such as an auto loan or mortgage, or even student loans, ask the lender whether they will require a hard or soft inquiry to secure the funds.
Also, keep your hard inquiries on your credit to a minimum. You do not want to lower your credit score by applying for multiple credit cards or other loans. Additionally, overextending yourself from a credit perspective can hurt you financially.
You should also check the hard inquiries you have actually made against those that appear on your credit report to avoid credit card fraud. You can do this by obtaining a copy of your credit report at AnnualCreditReport.com.
Conclusion
While both soft and hard credit inquiries are conducted to assess your credit status, hard inquiries can affect your credit score for a year and remain on your credit report for 24 months. For this reason, it’s important to understand the difference between hard and soft credit inquiries and when each is required.
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Sources:
– Experian. “What Is a Soft Inquiry?”
– Equifax. “Understanding Hard Inquiries on Your Credit Report.”
– Experian. “What Are Inquiries on Your Credit Report?”
– Fair Isaac Corporation. “Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO Score?”
Source: https://www.thebalancemoney.com/the-difference-between-hard-and-soft-credit-inquiries-4693740
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