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Credit inquiries happen when a lender or authorized party checks your credit report to see if you're a responsible borrower. There are two types: hard and soft inquiries, each affecting your credit score in different ways.
What Is a Soft Credit Check?
A soft credit check, sometimes called a soft credit inquiry or “soft pull,” is a review of your credit. This type of credit check is commonly performed by a potential employer, or by a credit card company before they send you an offer (such as the offers you receive in the mail).
It also includes credit reviews you have initiated, such as requesting your free annual credit report or determining the interest rate you may qualify for on a loan (i.e. pre-approval). Essentially, a soft credit check is when your credit history is being reviewed, but you haven’t requested a credit line or loan.
Do Soft Credit Checks Affect Credit?
A soft credit check will not impact your credit score. It’s common for credit card companies to purchase your data from the credit reporting companies to determine if you qualify for their offers. And because a soft credit inquiry also includes any time you request your credit report for your own review, think of how unfair it would be if you were “dinged” every time you wanted to view your own credit report.
What Is a Hard Credit Inquiry?
A hard credit inquiry, sometimes called a hard credit check, or “hard pull,” is typically conducted in response to situations such as applying for an auto loan, personal loan, credit card, mortgage, housing rental, and certain student loans (such as Direct PLUS Loans, and private student loans). This happens when you have requested that a creditor or lender loan you money or accept your promise to pay, like when you promise to pay rent.
Hard credit pulls cannot be done legally without your authorization. If you are applying for a loan or line of credit, or if you are attempting to secure housing (including an apartment or house rental), you must give permission for your credit to be pulled.
How Many Points Does a Hard Inquiry Affect Your Credit Score?
A hard credit check may impact your credit score, especially if you’re still working on establishing your credit history.
For many people, there is not likely to be an impact to their overall score. For some, the hit could be around 5 points off their FICO® score; which could make a dent if your credit score is lower to begin with.
This seems to plague college students and recent graduates because of the limited number of accounts and brief credit history in their profile. It’s best to exercise caution when applying for credit and try not to exceed six inquiries in a twelve month period. Why six? This number sends a signal that you may be a high risk to creditors since individuals who exceed six inquiries are 8 times more prone to file for bankruptcy than people who have no inquiries.
How Long Do Hard Inquiries Stay On Your Credit Report?
Credit inquiries may stay on your credit report for up to 24 months, but will only impact your credit score for the first 12 months.
Interest Rate Shopping
It is important to know how ‘rate shopping’ works. FICO® considers all similar inquiries made within a 14-45-day window as a single inquiry. This window is dependent upon the version of the FICO scoring formula used to calculate your FICO score. This applies to mortgages, applying for housing such as an apartment or home rental as well as auto loans and even student loans. Outside of this ‘rate shopping’ exception, each time a hard credit inquiry occurs, it could cost you a few points on your score.
How to Remove Hard Inquiries From Your Credit Report
If you come across unauthorized inquiries while reviewing your credit report, take immediate action. Contact the credit reporting companies to file a dispute, as this could indicate fraudulent activity. Stay vigilant and follow up on any unfamiliar inquiries by contacting the listed creditor to inquire about their purpose. Additionally, consider adding a security freeze to your credit report. This helpful measure prevents identity thieves from misusing your credentials and accessing new credit in your name. However, be aware that a security freeze may temporarily restrict legitimate creditors from reviewing your file and approving any loan or credit card applications. You can always lift the freeze temporarily and reinstate it as needed.