When a company submits a credit inquiry, your score and credit information are immediately put to the test. Depending on the type of inquiry, your credit score may get dinged by a hard credit check or not affected at all by a soft credit check. We're covering what the difference is between a soft and hard inquiry, along with how to decide when you should allow a credit inquiry to happen.
What is a hard inquiry?
Hard credit inquiries are performed by authorized individuals or organizations when you apply for a credit-related service or a loan. Since they play a significant role in the final decision about your credit application, these checks can temporarily lower your credit score by a few points.
How do credit checks affect your score?
If you're looking to open a new line of credit or request a large loan, be prepared for a hard credit check. For every new credit application, the risk of outstanding debt is higher, so the lender must make sure that you can keep up with your debt payments.
According to FICO, each new hard inquiry typically lowers a score by less than five points, and the impact slowly decreases as the inquiry grows older. In fact, while hard inquiries show on your credit report for up to two years, the faster you settle your debts, the sooner your credit score will bounce back, usually within a few months.
How can I minimize hard credit pulls?
Although there are multiple factors associated with reducing a credit score, be aware that for every new loan application, a hard inquiry will immediately take place and that the rest of your credit information will matter, too. For example, credit inquiries for FICO models account for 10% of your score, while your payment history is worth up to 35%.
Due to the effect of hard credit checks, you should refrain from seeking multiple loans in rapid succession. Instead, only apply for credit when you need it. If several different inquiries occur within a short period, your score will still be temporarily reduced or may be denied because it sends a red flag. Try to avoid new loans for at least six months, which will give your credit score time to bounce back and help you with future credit applications.
How to remove an unauthorized hard credit pull?
Whenever you receive or request your credit report, you'll want to validate that all inquiries are accurate and relate to a specific lending application you asked for. While unexplained hard inquiries usually result from simple reporting errors, they may also be a sign of fraudulent activity. Unauthorized inquiries should immediately be reported to the appropriate credit bureaus – you will be able to dispute the inquiry and request its removal from the final report. In addition, consider temporarily freezing your reports or secure them with fraud alerts.
Common hard inquiries
The most common reasons for a hard credit check include the following:
- Credit card application
- Rental application
- Line of credit application
- Requesting a credit limit increase
- Collection agencies skip tracing
- Utility applications
- Loan applications (auto, student, mortgage, etc.)
What is a soft inquiry?
Soft inquiries, or "soft pulls," happen when you check your credit report yourself or if a lender accesses the information to pre-approve you for an offer.
Will checking my score lower it?
Soft credit checks are unrelated to lending money, so they're not associated with greater repayment risk. In addition, they're only visible on consumer disclosures and do not affect your credit scores. Most of the time, these inquiries do not even show up on your final credit report.
How can I increase my credit score?
Credit Builder helps you automatically build credit history at One. There are no fees, no credit checks, no extra application, and no minimums required! We’ve designed an easy way to build or rebuild your credit score that’s fully integrated into your existing One account and uses your same One card.
Common soft inquiries
The most common soft credit checks include the following:
- Personal credit score checks
- Pre-qualified or pre-approved credit offers
- Insurance applications
- Employment verifications
- Account reviews by current creditors
- Current credit card issuers may check your scores to verify your eligibility for new cards or other related products.
How can I monitor my credit score for free?
Keeping tabs on your credit score is vital for your financial health. Your credit score helps determine if you’ll qualify for a line of credit and what rate you’ll pay. One’s Credit Manager gives all One customers ongoing access to a free credit score along with personalized credit insights in the One app! Keeping an eye on your credit history can help protect you from mistakes or catch early signs of identity theft.
How do I get a free copy of my credit report?
By federal law, you are entitled to a free copy of your report every 12 months to review that the information collected is accurate as well as give you a chance to report and fix mistakes. The 3 national credit bureaus have a centralized place to request your free copy. There are 3 ways to contact for your credit report:
- By visiting their website, www.annualcreditreport.com
- By calling their toll free number, 1.877.322.8228
- By completing a request form, then mailing to:Annual Credit Report ServiceP.O. Box 105281Atlanta, GA 30348-5281
The difference between hard and soft inquiries has to do with the purpose of the inquiry itself: are you just trying to find out what your current score is, or are you looking to open a new line of credit? Were you pre-approved for a credit offer, or do you need to request a mortgage for your dream house? It is wise to always keep all credit reports under control to be aware of how your payments impact your scores and any future lending opportunities.