The Difference Between Hard and Soft Credit Inquiries

Blog Post12/14/2015
Credit Advice

While you may have heard the terms “hard and soft inquiries” used often when it comes to applying for credit, few people know what they really mean and how they impact credit scores. Hard and soft credit inquiries are both requests to view your credit by retailers, financial institutions and other lenders.

While both types of inquiries appear on your credit report, only you can see your soft inquiries, and anyone who requests your report can view your hard inquiries. Understanding these distinctions can help you make wiser choices regarding future credit applications and become more credit savvy.

Types of Credit Inquiries

A hard credit inquiry occurs when a potential lender examines your credit report and uses that information to decide whether to extend an offer for credit. For instance, if you apply for a home mortgage or a car loan, your lender will make a hard inquiry of your credit to help determine if you qualify for the loan.

A soft credit inquiry, on the other hand, is a more routine check that can be done without your permission. A common example of a soft inquiry is when a lender you’re currently doing business with checks your credit to make sure you’re still creditworthy. You can also trigger a soft inquiry yourself if you check your own credit.

Effect on Credit Score

When it comes to your credit score, the only type of inquiry you have to worry about is a hard inquiry. A soft inquiry does not affect a credit score at all, since it’s not an application for credit. Generally speaking, it’s a good idea to limit the number of hard inquiries you make. A typical hard inquiry could knock up to five points off a credit score.

Credit scoring models tend to associate a high number of hard inquiries with elevated risk. This means that if you have six or more hard inquiries on your credit reports, you may be up to eight times more likely to file bankruptcy than someone with no hard inquiries. As a result, creditors might be less likely to extend you credit at decent interest rates.

How Long Do Inquiries Remain?

As with most things related to credit, the more time that passes, the less of an effect an inquiry has on a credit score. Both hard and soft inquiries remain on credit reports for 24 months, visible to anyone who pulls your report.  Though, a hard inquiry only affects your score for the first 12 months.

Bunching Inquiries

The credit-scoring model isn’t just all about raw data. The formula also takes into account the typical behavior of someone looking for credit. For example, if you apply for a home or car loan, you’ll likely shop around at different lenders to try to get the best interest rate. Since that type of behavior reflects good financial sense, rather than credit abuse, you won’t be penalized for it.

Credit scoring models typically count mortgage or auto loan inquiries made over a short time period, such as 45 days, to be one credit inquiry for credit scoring purposes. That means that if you’re searching for a home or car loan, bunching your hard inquiries into a short window of time may not have much of an effect, if any at all, on your credit score.

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