Credit Inquiries: What You Should Know About Hard and Soft Pulls
Did you know every time someone, including you, reviews your credit report a credit inquiry is added to your report instantly?
A credit inquiry is a request that’s made by a “legitimate business” to check credit report information on an individual from a credit reporting agency. There are two types of credit inquiries you should know about.
The first one is a hard inquiry also known as a hard pull. The second one is a soft inquiry also known as a soft pull. As you know credit inquiries are a major part of the underwriting process for all types of credit.
The good news is your personal credit report lists all of the inquiries, including some that are not seen by anyone else. All credit inquiries remain on your credit report for two years.
Let’s break down each of these inquiries and how they impact your credit scores.
What are Hard Inquiries?
Hard inquiries get triggered when you apply for credit or other actions that may require a credit check such as applying for cell phone service or renting an apartment. Your credit may also get checked when you apply for employment since many employers take it into consideration when hiring someone.
This type of inquiry does affect your credit score and may even reduce your score up to five points. However, when you decide to go “rate shopping” for an auto loan or mortgage there is a built-in allowance for interest rate shopping. Most credit scoring models treat multiple inquiries for an auto loan or mortgage within a 30-day window as a single hard inquiry.
Each hard inquiry usually decreases your credit score for a short period of time. It’s important to avoid a high number of hard inquiries in a short period of time because lenders interpret this as an attempt to expand available credit fast which creates a higher risk for a lender.
What are Soft Inquiries?
A soft inquiry happens when someone other than you, such as a lender or credit card issuer, checks your credit for promotional purposes. These are credit checks that you don’t ask for so they don’t have an impact to your credit scores.
Anytime you receive a pre-approved credit offer in the mail, it’s from a bank that pulled your credit information for promotional purposes. Soft inquiries can also occur from banks, lenders and/or card issuers that you currently have a loan or line of credit with. This is typical during account reviews for credit limit increases and/or additional product offerings.
Bottom line, soft inquiries mostly occur without you even knowing about them. How you find out about them is when you check your personal credit report and review the inquiries section on your report. Remember, only hard inquiries can be seen by others who check your credit reports. They do not see the soft inquires, only you do.
What about a Personal Credit Inquiry?
A personal credit inquiry occurs when you check your own personal credit report. This action has no impact to your scores. You can check your credit anytime and it’s a smart financial move that you should adopt prior to applying for credit.
You can request a personal credit report from all three major consumer credit reporting agencies for free once every 12 months at AnnualCreditReport.com
Checking your credit reports gives you time to review the information being reported to ensure it’s accurate and up to date. If you uncover and mistakes or inaccurate information be sure to correct your credit report by visiting the credit reporting agency’s website and initiate an investigation.
Remember, not all credit inquiries are the same; only a hard inquiry will impact your credit score. If you want to track changes to your credit reports and be alerted to new information, you may want to consider a credit monitoring service.
On a final note, credit literacy requires us to be diligent and forward thinking. It begins by educating our children and ourselves on sound credit and financial management principles.
This article is from the U.S. Small Business Administration's Guest Blogger Marco Carbajo.
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