A velvet blanket. The pink pads of a kitten’s paws. And a mild brie spread across a toasted baguette. What do these all have in common? Besides describing the makings of a perfect afternoon, they’re all soft. And you know that without having to touch them.
But what makes a credit check soft? Well, the answer to that isn’t something you can find by canoodling your pet under a blanket while you snack on a cheese platter.
The difference between soft and hard credit checks has less to do with your sense of touch and more to do with the effect they have on your score.
It’s important to note that in this article, we’ll only be talking about hard and soft credit checks on prime credit reports from the three major credit bureaus, Equifax, Experian, and TransUnion. This is an important distinction from subprime reports, which function a little differently. With a subprime report, like a credit report from Clarity, there is no distinction between a hard or soft credit check and all inquiries show up on this report.
Now, let’s dive into the guide below and look at what you need to know about what they are and how they may impact your score when you’re looking for a personal line of credit.
What are Credit Checks?
A credit check happens anytime a person or company makes an inquiry into your credit. It may involve a brief peek at your score, or it may be a detailed review of your entire borrowing history.
How intense this assessment ends up being depends on the type of credit check performed.
There are two kinds of credit checks:
- Hard credit checks
- Soft credit checks
What Are Hard Credit Checks?
A hard credit check (which is also known as a hard pull or hard inquiry) is primarily used by some banks, mortgage lenders, and credit card companies. However, some utility companies and landlords may also use hard credit checks.
There may be a hard pull performed if:
- You apply for a new personal line of credit or loan
- You apply for an apartment, or an account with a utility company
A hard credit check can show an institution things like:
- Any installment loan or revolving credit account open under your name
- Previous hard credit checks
- Public records like bankruptcies
When it comes to financial companies, this information may help a lender make a better judgement call about your financial situation. They may use a hard credit check to help verify your ability to repay a loan.
But how does this check impact their decision?
Let’s pretend you owe a lot of money over several accounts with multiple late payments in your file. These entries may imply you’re under significant financial stress. What this may mean to a lender is that you may have a hard time paying back a loan.
However, if you keep several accounts in good standing and this is clear on your credit report, a lender may be able to reasonably assume you have a pretty good handle on things financially. Lenders may be more likely to approve your request for a new account, as your file suggests you may be less likely to have a problem repaying a loan.
Do Hard Credit Checks Affect Credit?
A hard credit check may impact your score, but your credit history may play a part in determining how much your score is impacted.
Your credit history impacts your credit score and the way your score is impacted by hard credit checks.
Multiple hard credit checks over a short period of time may raise a red flag to some lenders. They may also see you as a high-risk customer. Of course, there’s always an exception to the rule.
Sometimes, multiple inquiries made over a single product within a specific window of time show up on your report as one hard check. FICO and VantageScore, the two major credit scoring models, call this rate shopping.
What is Rate Shopping?
When you’re looking for a specific type of loan and comparing rates and terms provided by different financial institutions, you’re rate shopping. It’s all the research you put in before signing a contract, so you get the best deal possible.
Rate shopping may be a good idea, as it shows you what options are out there. It also may help you find the right product for your financial profile. Your credit score may impact the type of loan you pick, depending on what rates are available with your score, so you may have more or fewer options depending on whether you have prime or subprime credit.
No matter what your score is, it may help you to engage in rate shopping. That’s why hard inquiries that result from your rate shopping leave just one entry in your report. Some models will give you a period of 45 days to rate shop for a specific type of loan without feeling the effects of multiple hard checks on your credit. Others will give you a window of 14 days.
If you’re rate shopping for a mortgage, FICO treats all hard credit checks in connection with mortgages as one inquiry, provided they fall within a 45-day period. VantageScore follows the same general rule for any inquiries made within a 14-day window.
How Long Do Hard Credit Checks Stay on Your Credit Report?
Hard credit checks stay on your report for two years, but they may only affect your credit during the first year.
Can You Dispute Hard Credit Checks?
In certain situations, it’s possible to dispute hard credit checks. You may be able to have a hard pull removed from your record if you can prove it’s an error.
Below are the two most common reasons why other people dispute these checks.
1. An Inaccurate Entry
Sometimes, a financial organization may share inaccurate information to a credit bureau. Or, a credit bureau may accidentally add an inquiry to your report when it actually belongs on someone else’s, which may happen in a case where two people have the same name.
2. It’s a Sign of Fraud
A hard inquiry for an application you don’t recognize may mean a criminal used your personal information to open an account in your name.
Identity theft happens more often than you think. Large-scale data breaches affect millions of Americans each year, making identity theft a serious crime to look out for. According to one report, 47% of Americans experienced financial identity theft in 2020.
Report Errors Right Away
If you spot any inaccurate information on your credit report, you’ll want to get in contact with the following:
- The company that reported the incorrect information
- The credit agency that generated the report
If you suspect your identity was stolen, you should also visit IdentityTheft.gov. It’s the Federal Trade Commission’s one-stop resource for identity theft that helps you report and recover from fraud.
What Are Soft Credit Checks?
A soft credit check (which is also known as a soft pull or soft inquiry) provides another look at your report.
There are many other situations that may involve a soft inquiry. Some of these situations may include:
- Some insurance and credit card companies may use a soft inquiry to assess borrowers before sending offers for products.
- An employer may use a soft pull with your permission, if the job involves working with money or security.
- Landlords and utility providers may perform soft credit checks when you apply for a new apartment or a new account.
This is a varied list that has some overlap with hard credit checks. If you’re ever uncertain about the type of inquiry a person or company will perform, ask them.
Do Soft Credit Checks Affect Credit?
No, a soft credit check should not impact your credit score.
A soft inquiry doesn’t show up in your credit file like a hard pull. Only you and the person or company that performs a soft pull will see it.
So, if you’re worried you hurt your score by checking your credit score earlier this month, take a deep breath! It won’t hurt your score.
In fact, it’s important that you check your credit regularly. Reviewing your credit is an important part of managing your money, as it lets you know where your credit stands.
It’s also your right. Every year, you can get a free copy of your credit report from each of the three major credit agencies. Ordering one copy every year from each agency is a simple way of keeping tabs on your score periodically throughout the year.
The Main Difference Between Hard and Soft Credit Checks
Although they may show similar information about your borrowing history, these credit checks have some distinct differences.
In summary, hard credit checks:
- Appear on your credit report
- May affect your credit score
Meanwhile, soft credit checks:
- Can only be seen by you and the individual or company that performs it
- Will not affect your credit score
How Do Soft and Hard Credit Checks Factor into Managing Your Credit?
Sometimes, a hard check is unavoidable. But there are ways of managing credit that limit how these inquiries impact your score.
Let’s say you move to a new city, where you quickly lock down an apartment and your landlord opts to check your credit and leaves behind a hard inquiry.
At this point, your score may suffer if any more hard pulls get attached to your file. Knowing this, you may want to wait before you apply for those new credit cards you were eyeing for their cash-back rewards.
As a general rule, waiting about six months between credit card applications may help you side-step the negative effects of these checks.
Waiting six months is easy if you only want a new credit card for its perks. But it may be impossible when you need credit to help cover an unexpected bill or repair.
Let’s revisit our example from before. Your car breaks down and you spent all your savings in the move. If you need your car to get to work each day, you need to pay the mechanic as soon as possible — not in six months’ time when you’ll avoid a hard inquiry.
At this point, you may choose to search for other options for financing your emergency. Make sure to do your due diligence and only apply for credit options that you can afford.
When it comes to managing credit, your task is personal. Only you can decide what’s best for your unique financial situation.
The same basic principle applies to whether a hard inquiry is worth the lost points. Depending on your credit history, a hard pull may have little (if any) impact on your score. Or, it may leave a temporary dent in your rating.
If you’re building your credit history, or if you have bad credit, every little bit counts. Think about what an inquiry may mean for your credit health and consider your options wisely.
Posted in: Credit Score