When you apply for credit or any kind of financial service, the lenders check your credit score or credit history as part of the lending process. This inquiry is done by an authorized individual or an institution. And this process is known as credit inquiry. The lenders use your credit information to see how you have handled your credits in the past; if you have paid your credit bills on time and if you have any derogatory marks on your credit report (an indication that you did not pay back the loan as per agreement). Based on your credit report, the lenders decide whether to extend you the credit or not. There are two kinds of credit inquiries: hard inquiry and soft inquiry. Also known as a hard pull and soft pull. In this post, you will get a detailed overview of what is hard inquiry and soft inquiry, the differences, and tips to reduce the chances of hard inquiries. Read on!
Hard Credit Inquiry vs Soft Credit Inquiry
A hard credit inquiry takes place when you apply for a loan or credit card and the lender checks your scores to decide your loan approval.
A soft credit inquiry takes place when you check your own credit score or when lenders give you an offer for pre-approved loans.
Hard inquiries happen with your consent or permission.
Soft inquiries take place without your consent.
Hard inquiries can affect your credit scores.
Soft inquiries do not affect your credit scores.
Let’s dig deeper and understand hard inquiry and soft inquiry in detail.
What is a Soft Enquiry?
When a person or a company checks your credit as a part of your background check or if you check your own credit score often that appears as a soft inquiry or a soft pull on your credit report. Soft inquiries do not affect your credit scores unlike hard inquiries and sometimes soft inquiries may not even be mentioned in your credit report depending on the credit bureau. Soft inquiries may take place for example when a credit card company checks your credit scores without your permission to check if you are eligible for a credit card or if a company checks your credit scores before hiring you. Moreover, if you check your own credit scores that will be classified under a soft inquiry too.
There are also different types of credit inquiries that may show up as either hard or soft inquiries in your credit report. So if you are unsure about the classification of the inquiry, always make sure to ask the company or financial institution that has run the check to classify the type of check.
What is a Hard Inquiry?
These inquiries usually occur when a financial institution such as lenders or credit card issuing companies run a credit check in order to make a decision on lending you a credit. It is important to know that hard inquiries may affect your credit score, it might be negligible or lower it by a few points. However, one single hard inquiry will not affect your credit scores too much if you have applied for a new loan or credit card. Hard inquiries most commonly take place when you apply for a mortgage, a loan or a credit card. Make sure to not apply for too many loans or credit cards at different companies at the same time because too many hard inquiries on your credit report will portray you as a high-risk customer who is going through a financial crisis. Some of the common hard inquiries are mortgage loan applications, auto loan applications, education loan applications, personal loan applications and apartment rental applications.
Most hard inquiries remain on your credit reports for at least two years. So, before applying for too many loans or credit cards in a short span of time, think twice. Checking your own credit report often is highly recommended so that if you spot any errors or any credit check that has been done without your permission you can clarify it or raise a dispute. Remember that you can only dispute hard inquiries that have been done without your permission and not anything else.
Your credit scores or your credit report determines your creditworthiness and financial well-being. Therefore before applying for any kind of loan or credit card focus on building your credit scores. If you are careful enough you should learn how to manage inquiries and be prepared for a hard inquiry. Always try to maintain a good credit score so that when you apply for any kind of loan or credit card in need you do not have to face rejection.
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