By Carla Fried | American Express Credit Intel Freelance Contributor
5 Min Read | January 29, 2021 in Credit Score
When you apply for a loan or new credit, businesses will make a “hard pull” of your credit report. A hard inquiry can cause your credit score to dip a few points.
A “soft pull” is recorded any time someone – you, a business you already have an account with, or one that is considering you for a preapproval deal – reviews your credit report.
The key difference is whether you formally asked to borrow money.
Checking your credit report periodically for hard credit inquiries you didn’t request is a good way to keep an eye out for identity theft.
A major fact of life is that whoever you do business with will likely evaluate your financial status – and do it regularly. Whenever you apply for a loan or sign up for a new cell phone plan, lenders and businesses will make a “hard” pull of your credit report to get a sense of how well or poorly you handle spending and debt payments. Businesses you already have an account with, or others that may want to offer you a “preapproval” deal, can also take a peek at your credit report. But when they’re just looking, it’s considered a “soft” inquiry.
There’s usually no difference in the information divulged in a hard or soft credit inquiry. And what businesses see is the same as what you see when you check your credit report for yourself – which you should do from time to time to keep an eye out for mistakes or identity theft. But here’s how hard and soft pulls differ:
Understanding the differences between soft and hard credit checks can help you avoid any unnecessary dips in your credit score.
Besides applying for a loan or a new credit card, there are other financial moves that will create a hard credit pull. Landlords or leasing managers may make a hard pull when you apply to rent a place. Turning on the utilities at a new home can also trigger a hard pull – the water company and the electric/gas supplier may require deposits from people whose credit report shows they’ve had trouble consistently paying bills on time. The same holds true when you sign up for a cell phone plan. Even renting a car might trigger a hard inquiry credit check if you pay with a debit card instead of a credit card.1
Each hard inquiry stays on your credit report for two years, but it generally only factors into your credit score for the first 12 months. And even during that first year the impact is typically small – about five points.2 That’s a minor ding compared to other financial moves that can trigger a big credit score drop. For more about the factors that are used to calculate your credit score, read “What is a Credit Score and How is it Defined?”
The reason a hard inquiry impacts your credit score is because you’re asking for credit in one form or another. Hard inquiries also serve as a heads up to businesses checking your credit. If they see multiple hard inquiries popping up over a few weeks or months, that can be a yellow flag that you may become financially overextended.
There is a way to minimize the impact of hard pulls on your credit score when shopping around for a loan. The two main credit scoring models, FICO and VantageScore, don’t penalize you for being a smart comparison shopper who submits loan applications to a few different lenders as long as you do it over a relatively short time span.
Say you’re shopping for a car loan. You’re allowed a window of time where all hard inquiries related to a similar type of loan will be bunched together and count as just one hard inquiry. This shopping window ranges from 14 days to 45 days, depending on which version of a credit scoring model is being used. A safe move is to try and get all your loan apps submitted in a two-week period.
When you or a business just want to check your credit report – without any formal request for money or credit – it counts as a soft credit pull. You can think of soft credit inquiries as a non-event, as they have no impact on your credit score. Here are some soft pull examples:
It’s smart to check your credit report periodically for suspicious hard inquiries that you didn’t authorize. That can be a tip-off that an identity thief may have used your personal information to apply for a loan or credit posing as you. If you ever find a hard pull you don’t remember requesting, you’ll want to take steps to alert the credit bureaus, consider a credit freeze, close down any unauthorized accounts you discover, and then file a dispute to have the unauthorized hard pull removed from your credit report.
The main differences between hard inquiries and soft credit inquiries are whether you formally asked for credit and how they impact your credit score. Only hard credit pulls can hurt your credit score. But even so, a hard pull typically only causes a small – and temporary – dip in your score.