The Major Differences Between Hard and Soft Inquiries
The credit industry is one of the most misunderstood and often misconstrued. Truthfully speaking, much of this can be attributed to the lack of knowledge or awareness to some of the most important credit terms and concepts. One of the most asked questions by credit holders, typically newer credit holders, is the differences between hard and soft inquiries. These are two different inquiries that are placed on your credit report that can make a significant impact or mark. This credit concept can be the leading decision behind whether a car company approves or denies you. With that being said, let’s explore the major differences and learn a few new things about how the credit industry operates.
First Question: What is an Inquiry?
Before we can dive into the differences between hard and soft inquiries, we are going to start with the basics of what an inquiry actually is, from a credit terminology standpoint. At the simplest definition, an inquiry is a mark that is documented on your credit report for when an establishment looks at your credit score. Now, there are dozens of different reasons why a company would pull your credit score. For example, a company may pull your credit report to decide whether to extend your credit line or whether or not to hire you for a job.
Typically, or in the more basic ideology, an inquiry, in the eyes of establishments, is how many times, or when, an individual decided to extend or open new lines of credit. If you can imagine, as mentioned above, these scenarios are endless! When applying for a car loan or mortgage, financial experts will look at your inquiries to discover what your tendencies are and how responsible you are.
If you decide to access your personal credit report, you will actually get a detailed brief regarding your inquiries. Now, it’s important to know that inquiries typically only stay reported for two years; however, sometimes, the credit bureau may not remove them. So, it’s imperative to always check back with your credit report to ensure your record is clean of any notable inquiries.
Understanding the Differences and Impacts
With an understanding of what inquiries are, we can begin exploring the two different types of inquiries that you can expect to see on a credit report:
- Hard Inquiries
- Soft Inquiries
Lenders will look at inquiries on your credit report as these small marks reveal a lot about your credit personality. With that being said, let’s take a look at the differences between each of these and how they may impact your credit score and/or life.
If we can be frank, hard inquiries are the biggest concern and most important type of inquiries to pay attention to. Hard inquiries are marks on a credit report that indicate when an individual has applied for a recent important line of credit. Here are a few examples of a hard inquiry:
Hard inquiries are vital to lenders as they portray the type of individual you are. Individuals who have many hard inquiries are riskier and may not be worth the investment. Typically, lenders will begin looking at your recent hard inquiries, change of credit score of the course of the year, and then look at your specific factors, like credit utilization and or payment history. If you're trying to get a card to pay for business expenses there are business credit cards no credit history required.
Now, here is a major catch – sometimes, establishments, such are car financing companies or mortgage companies, tend to pull multiple credit checks, which if you been paying close attention, is double the hard inquiries. In such cases, it will show up on your credit report, and potential make a significant impact on whether future lending companies will approve you.
While hard inquiries are intimidating, soft inquiries are gravely different. Soft inquiries are mere marks for viewing your personal credit report. Now, there are many times in which this may happen:
- Annual Credit Report Checks
- Credit Card Credit Check (Free Monthly Service)
- Work Credit Check
- Companies That Send Pre-Approved Offers in the Mail
Soft inquiries happen quite frequently, and sometimes without you even knowing. Now, it’s important to know, soft inquiries will never make a difference as to whether or not you can open a new line of credit – nor well they show up as one. Also, these marks should only be on your report for two years, as mentioned above. If soft inquiries are on your credit report for longer, you must file a dispute or claim with the specific bureau.
Controlling Your Inquiries
With the information at hand, now it’s time for you to begin acting and controlling your inquiries. What many credit holders do not realize is that they have control over their inquiries and their credit report. To begin, take the time to purchase or receive your annual free copy of your credit report and analyze all of the information. If you are noticing that any information on loans, anything for this matter, does not make sense or is incorrect, don’t hesitate to report this information. Moreover, look at all of the inquiries over the past two years. Again, if there are any past the two-year marker, especially hard inquiries, you must file a claim to remove them. This may take a bit of effort from your end; however, you might find yourself improving your credit score from taking the time to dispute your credit report. From there, stay up-to-date with your credit report and inquiries. This is your tool to protecting your credit score.
Good Credit Takes Effort
Truth be told, having good credit and keeping good credit will take effort. One step to having a healthy and clean credit score is understanding your inquiries. With this article, now you have the information needed to review your credit report, where to look for inquiries, and what type of inquiries are considered “red-flags”. In light of this, whenever you are shopping or opening a new line of credit, always ask questions to ensure companies are not double checking your credit, adding an additional hard inquiry, and, as a result, harming your credit even more.
Financial Advisor - MoneyBeagle.com
David is our in-house financial advisor with years of experience in the credit card industry. He became interested in credit cards after working for several years at a major bank. He holds a Masters Degree in Finance.