Understand the Difference Between Hard and Soft Credit Inquiries

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All credit applications are not the same

A very important step towards fixing your credit score or achieving more favorable interest rates from lenders is to know what happens to your score once you apply for credit. Although most consumers have an understanding that it can be detrimental to their credit rating to make dozens of credit applications, they don’t know why or when this isn’t the case.

Two types of inquiries
Portrait Of Happy Businessman There are in fact two types of inquiry that can be made once a consumer applies for finance. Once can trigger a temporary reduction in their rating, while the other is unlikely to cause any detrimental effect to their score. Because of this potential, it is imperative to know the difference and which type of credit inquiry applies before you apply for finance.

 

Understand the Difference Between Hard and Soft Credit Inquiries

Hard and Soft Credit Inquiries Infographic (scroll down if you want to use it on your website)


Type 1- The Soft Credit Inquiry

What is a soft credit inquiry?

It is a simple request for credit information. It is most often conducted as a part of a wider background check but can also sometimes be conducted as part of the decision to issue credit.

Who uses soft credit inquiries the most?

  • Credit card issuers that send out “preapproved” cards
  • Employers when undertaking background checks on prospective employees
  • Landlords or rental agencies for potential tenants of apartments and condos
  • Consumers when they request copies of their credit reports from Experian, Equifax and TransUnion.

Will thus type of inquiry have an adverse effect on my credit rating?

No. The “Soft” inquiry dos not negatively impact your credit rating at all.

Type 2- The Hard Credit Inquiry

What is a hard credit inquiry?

This is an inquiry that is made solely for the purpose of deciding to grant or reject an application for credit or finance, such as a personal loan or a credit card. It involves the requestor obtaining a copy of your credit file and reporting their inquiry request to the bureaus accordingly.

Who uses hard credit inquiries the most?

  • Lenders
  • Credit card issuers
  • Personal loan companies
  • Auto loan providers
  • Store credit card issuers
  • Mortgage providers

Will thus type of inquiry have an adverse effect on my credit rating?

Yes. A hard credit inquiry will have some impact on your credit rating. For most consumers, the reduction in their rating is very small but each inquiry will be recorded on their file for a number of months or even a couple of years. Cumulatively, this can add up.

What is the effect of frequently made hard inquiries?

If a consumer makes multiple and frequent hard inquiries their FICO credit rating can be damaged significantly. This is why it is important to only apply for credit or finance carefully, after having researched all of the available options and selecting a service that stands the best chance of approving their application. You should preserve your credit score and make hard credit inquiries very selectively.

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