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Your credit score is only one piece of the puzzle that is your credit file – but it is also one of the most important ones! Lenders and creditors will assess your creditworthiness based on your credit score, rating, and history, and they do so by pulling a check on your credit file.
However, not all checks are equal and, if you are in the process of applying for a credit card, taking out a mortgage, or remortgaging your home, you’ll begin to hear about soft vs hard inquiries.
Here’s all you need to know about these checks and the impact that they might have on your credit file.
Hard Inquiries vs. Soft Inquiries: An Overview
Before we start, let’s understand what hard and soft inquiries are. These checks allow lenders to look into your credit file and history and understand the level of risk you pose as a borrower. Depending on the results of these checks, you might get more or less convenient interest rates and financial products.
The two main differences between hard and soft inquiries are whether you give consent to the lender to carry out the check and how in-depth the assessment is.
If you are unsure about the impact that these checks will have on your credit score or what a hard pull will mean for your credit file, resources such as BadCredit.org have the answers you are looking for.
What Are Soft Inquiries?
Soft inquiries are routine credit file checks that are carried out without your permission. For example, credit card issues might peek into your credit history to make an offer for a new credit card or loan that reflects your creditworthiness.
When Is a Soft Inquiry Required?
Soft inquiries are much quicker and more frequent than hard inquiries and are usually done by creditors to provide pre-approval to financial products or offers. Some employers might also carry out a soft pull on your credit file as part of their background check. Additionally, you might carry out a soft inquiry when checking your credit score.
The Impact of Soft Inquiries
Soft inquiries don’t affect your credit score or your ability to take advantage of convenient mortgage and loan rates. Although these inquiries do appear on your credit report, they are only visible to you.
What Are Hard Inquiries?
Whether you are looking to fund your business with a personal loan or buy a home, your lender will likely carry out a hard inquiry or hard pull on your credit file. These inquiries are more in-depth assessments of your credit history and are used to determine your suitability as a borrower, the interest rates offered to you, and the terms of financial products such as credit cards and loans.
When Is a Hard Inquiry Required?
Hard inquiries are usually carried out by creditors and lenders when you apply for a loan, mortgage, or credit card. Unlike soft checks, which can be carried out without your permission, hard inquiries require you to give written consent to lenders.
Creditors are likely to use the results of this check to decide whether to grant or deny a loan.
The Impact of Hard Inquiries
Unlike soft inquiries, which can be carried out at any time and without consequences, hard inquiries can impact your credit score. In turn, you should make sure that your credit rating is healthy enough to withstand the impact of a hard inquiry.
According to Equifax, hard inquiries will stay on your credit report for about two years but are only likely to lower your credit score for one year. Generally, first hard inquiries will take around 10 points off your credit score, while one additional inquiry will lower it by 5.
It is also worth noting that having too many hard inquiries on your credit score can hurt your finances in another way. Indeed, in the eyes of lenders, too many hard inquiries indicate that you might have already been refused a loan or are dealing with unmanageable debt.
Pro tip – use reliable credit repair software to monitor and manage hard inquiries on your credit report. These software tools can help you track the number of inquiries you’ve had, notify you when a hard inquiry is added, and provide guidance on disputing any inaccuracies.”
How Many Hard Inquiries Are Too Many?
Although carrying out a hard inquiry is hardly desirable, don’t forget that one or two hard pulls are a normal part of shopping around for a loan and applying for a financial product. What’s more, your overall financial health matters more to lenders than a credit score lowered by a few points!
Nonetheless, if you have carried out six or more hard inquiries in a short period of time, you might be profiled as a high-risk customer. In turn, this can prevent you from accessing convenient deals and loans.
Pro tip – some popular credit scoring models such as FICO will group together several inquiries made in a short period of time, usually between 14 and 45 days.
Reducing the Impact of Hard Inquiries on Your Credit Score
Soft and hard inquiries aren’t always avoidable. However, there is a lot that you can do to reduce the impact that they’ll have on your credit score. One of the most efficient ways to do so is to focus on boosting your credit score for a few months before applying for a mortgage or loan.
And, don’t forget that, even if your credit score drops a few points, you are likely to see a rebound if you are accepted for a financial product. And, of course, having a positive and balanced credit history is what matters more!
