Difference Between Hard and Soft Loan Requests
If you received a loan offer after an offer in which you “pre-approved” a certain product, you may be wondering how the lender made his decision.
The insurance / credit / mortgage company probably performed a soft review of your report without your permission, which allowed them to get an idea of your credit history.
Soft loan request
In addition to these pre-approval proposals, soft request / retrieval can occur when you review your own report or when, for example, an employer verifies it as part of a background check .
“Since soft requests are not tied to a specific application for a new loan, they are only visible on your credit report,” writes Experian , one of the three major US credit bureaus. “Potential lenders won’t be able to see them … and soft inquiries are never seen as a factor in credit scoring models.” This means that they will not affect your account in any way.
This is different from a complex investigation.
Hard credit request
“If you are applying for a loan such as a mortgage, car loan or credit card, the lender (with your permission) will check your credit report and credit rating with one or more major credit bureaus,” writes Experian. This is known as hard request / pull.
Here are some common examples of credit karma :
- Mortgage applications
- Car loan applications
- Credit card applications
- Student Loan Applications
- Loan applications
- Apartment rental applications
This can affect your credit score, although the impact of a single query is likely to be negligible. But if you apply for many of the above products in a short timeframe, it will affect your rating negatively, but temporarily (this indicates to credit card companies that you are “having trouble paying bills or at risk of overspending,” writes Experian).
However, if you are reaching out to, say, multiple auto loans or mortgage lenders in a short amount of time, most credit scoring models will count it as one request since it is assumed that you are picking the best deal. How many days you have to apply for multiple products in one time period depends on the FICO model, although it is usually 30 days , and “the VantageScore model gives you a sliding two-week shopping window with the best interest rates on certain loans. – writes Credit Karma. However, it is still not recommended to apply multiple credit cards at once.
“Experian lists all requests that are entered into your file over two years, so you have a complete record of who viewed your credit history, but they will only count as one request when calculating points,” the company notes . Their impact on your assessment will gradually diminish over the course of two years.
Other credit rating factors
As you probably know, credit inquiries are only one aspect of your credit rating, and as Experian notes, complex inquiries are unlikely to result in a loan being denied. The length of your credit history, credit usage and payment history are much more important factors .
However, if you want to limit the number of complex inquiries, you must be sure to complete your loan purchase within a short amount of time so that they count as one inquiry and only apply for a credit card when you are sure that you want to. and will be approved.
Also, check your report regularly (which, again, will not hurt your score) for serious requests that will be listed for fraud checking. If you find anything fishy, here are the steps to take to get rid of bad grades. And remember that requests only stay on your report for two years, so don’t worry too much about them if they’re legitimate.
But more importantly, make payments on time and try to use as few of your credit lines as possible. This will boost your rankings much more than minimizing queries.