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Hard vs Soft Inquiries on Your Credit Report
You apply for a loan. That application is reported to the credit bureau. The application is then part of your overall credit score, and is noted as part of your credit history. While a new application is recorded on your credit score, not every inquiry is reported. There are two variations of credit inquiries – soft and hard.
The Difference Between Inquiries
There are two types of credit checks, and they are not created equally.
- A hard credit inquiry is usually related to a new loan or some other borrowing application. The lender checks your credit score to determine if you are a good risk for the loan and likely to pay it back. This is a hard inquiry and is recorded on your credit score.
- A soft credit inquiry is just that – soft. When you receive a preapproval offer in the mail, the company sending it has done a soft inquiry. Checking your FICO score through your personal bank or credit monitoring are other types of soft credit inquiry. Most importantly, the soft inquiries does not affect your credit score.
How Hard Inquiries Work
When you apply for a new loan such as a mortgage, car loan or personal loan, the lender has you complete an application and asks for your permission to check your credit score. The lender uses your information to check your credit and see your borrowing history and how well you’ve managed loans and credit cards in the past.
Even if you don’t take the loan (or if you aren’t approved for the loan), the inquiry remains on your credit application. This, in turn, can absolutely affect your credit score. In fact, too many inquiries in a short time – even if they all result in a new, responsibly used loan – will lower your credit score.
When you apply for multiple loans in a short period of time, lenders become concerned. The more inquiries you have, the more you are presumably borrowing or the more you need to borrow. Opening multiple accounts in a short amount of time makes it look like you are stretched thin financially and need more cash on hand. This is why multiple hard inquiries will ding your credit, at least for a while.
Your credit score does understand the nature of healthy borrowing, however. If you are shopping for a new loan with multiple lenders, each lender will check your credit in a hard inquiry. The credit bureaus, however, will not consider each of those inquiries separately if they are for the same type of credit in a very short period of time.
If you’re shopping for a new car, for example, and run your credit in three dealerships over a few days of comparison shopping, the credit bureaus will only report that as a single inquiry. This creates less of a negative impact on your credit score. Hard inquiries will lower your credit score, but they are only one factor that contributes to overall score.
How Long Do Hard Inquiries Stay on Your Credit Report?
You can expect the hard inquiries on your credit to linger for about two years. Just past the two year mark, those inquiries will drop off completely, but even before that, the impact of the inquiries becomes gradually reduced.
If you use credit wisely, even if you opened several new accounts in a short period of time, you can expect that the inquiries will have only a little bearing on your future ability to borrow, even in the relative short term. It matters significantly more if you are paying your bills on time and using only a small portion of the credit that has been extended to you. Credit utilization rates and timely payments are the two factors that are weighted most heavily in your credit score.
Removing Hard Inquiries
You do have the option to remove a hard inquiry before it naturally falls off your credit report. If a company pulled your credit without your permission, you may request that the credit bureau remove that hard entry from your credit report. You should also be carefully monitoring all hard inquiries. If you see a hard inquiry you didn’t authorize, it may also be a sign of credit or identify theft.
How Soft Inquiries Work
Checking your own credit score shouldn’t – and doesn’t – count against you. Likewise credit checks that aren’t tied to loans are not damaging to your credit score. That is why these are called soft inquiries. Soft inquiries are not reported to the credit bureaus, and they are not included in your credit score.
These inquiries might include:
- A credit check by a new employer
- Checking your own credit for credit monitoring
- Credit monitoring services
- Insurance companies checking your credit
- Preapproval offers from new lenders you didn’t request
Since soft inquiries don’t do any harm to your credit score, they can’t be removed or disputed. You can see the soft inquiries on your credit score if you request them, however.
Best Practices to Manage Credit Inquiries
Applying for loans can ding your credit with hard inquiries, so you want to be wise how you approach lenders. Consider the following best practices:
- Only apply for credit when you actually need it.
- Shop around quickly for comparison rates to minimize how many hard inquiries are reported.
- Monitor your own credit for activity you didn’t authorize.
Remember that your credit score is anchored by your credit practices – paying bills on time and not maxing out credit cards. These practices will have a much stronger impact on your credit score than credit inquiries.