Credit check

The difference between a hard credit check and a soft credit check

There are few credit topics that cause consumers as much confusion as the subject of credit checks or investigations.

You’ve probably heard some of the myths about how inquiries can hurt your credit score. Therefore, you may be wondering what the real impact of inquiries is on your credit profile.

The question of whether a credit check has the potential to harm your credit scores comes down to one key piece of information: is the credit check hard or soft?

What is a credit inquiry?

An inquiry is a record on your credit report that shows who accessed your credit information and when. The three credit reporting agencies – Equifax, TransUnion and Experian – are Required by law disclose (upon request) a file whenever access to your credit file has been granted.

What is a difficult investigation?

Some types of credit checks can damage your credit score (although that doesn’t mean credit score damage is guaranteed). These credit checks are commonly referred to as serious inquiries. Typically, serious inquiries occur when you request new credit or new services.

Here are some examples of difficult requests:

  • A lender checks your credit as part of a loan or credit card application.
  • A collection agency trying to locate you checks your credit for tracing purposes.
  • Your credit card issuer is checking your credit because you are requesting a credit limit increase.

The reason lenders and scoring models care about the number of serious inquiries on your report is simple: too many serious inquiries can indicate higher credit risk.

However, before you worry about the damage a serious inquiry could do to your credit score, remember that inquiries are only worth a small percentage of your overall credit score. According to both FICO and VantageScorecompanies that calculate credit scores used by lenders, inquiries generally won’t have a big influence on your credit scores.

Payment history is worth 35% of your FICO score. Your credit utilization, or the ratio of your outstanding credit card balances to your credit limit, is largely responsible for another 30%. Inquiries, by comparison, are only part of the new credit category of your credit reports. The whole category is worth 10% of your credit scores, and inquiries are only part of that amount.

What is a soft inquiry?

A soft inquiry is a credit check that does not damage your credit score in any way.

In fact, if a lender checks your credit, informal inquiries won’t show up on the lender’s copy of your credit report at all. Soft inquiries are only visible on consumer disclosure reports, which are credit checks that you initiate yourself.

Here are some examples of informal requests:

  • You check your own credit report.
  • A lender checks your credit as part of a pre-approval check.
  • Your current creditor checks your report for account maintenance purposes.
  • An employer pulls your credit for employee screening purposes.
  • An insurance company checks your credit to determine eligibility or pricing for a new policy.

The worst credit myth is the idea that checking your own credit could hurt your scores. It is completely false. You can check your own credit report at any time and it will never affect your scores.

Not only can you check your credit reports without fear of being damaged, but you should also check them. It is essential to check your three credit reports often to ensure that they are accurate and free from suspicious activity. (Note: If you discover unauthorized inquiries on your credit report, it could be a sign of identity theft.)

Get a free credit report and a free credit score from Bankrate.

Keep credit checks in perspective

It is true that you have to worry about all the factors that influence your credit scores. However, it’s important to understand that just because something can affect your score doesn’t mean it will greatly affect it.

Also, inquiries have a short lifespan compared to other types of information on your credit reports. Requests only stay on your reports for 24 months. Also, once a serious investigation is 12 months old, it will not count towards your scores.

Instead of obsessing over inquiries, pay attention to the factors that matter a lot more, like payment history and credit usage.

Apply for new credit only when you need it. You don’t have to be afraid to apply for new credit when you need financing or can get a better deal. However, you probably want to avoid applying for new credit in order to get a rebate on every purchase you make.

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