Difference Between Hard and Soft Loan Requests
When you apply for a loan, credit card, or apartment, you’ll likely see references to “hard inquiries” and “soft inquiries” on your credit report. To a consumer, these differences may seem minor (after all, companies do all the work and you don’t have to do anything), but it’s important to understand the difference between the two: one can potentially affect your credit score, and the other can potentially affect your credit score. Do not have another one.
What is a preferential credit request?
A soft inquiry, or “soft inquiry,” means a check of your credit report, but it is not associated with an application for new credit or a loan. Soft inquiries do not affect your credit score. Some common examples of soft queries include:
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Checking your own credit report
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The employer checks your credit history for employment purposes
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Credit card companies check promotional offers
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Lenders providing you with pre-approved loan offers
Since soft inquiries don’t impact your score, you don’t have to worry about how many of them accumulate on your credit reports over time.
What is a hard credit inquiry?
A hard credit inquiry occurs when a lender, credit card issuer, or other financial company checks your credit report because you have formally applied for a new loan or credit product with them. Examples of hard pulls include:
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Applying for a new credit card, mortgage, car loan, student loan, etc.
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Submitting an application to rent an apartment or house
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Requesting a credit limit increase from an existing lender
Unlike soft inquiries, hard inquiries can potentially cause a small, temporary drop in your credit score, usually around five points or less. However, over time, this impact decreases as queries get older.
Impact of severe investigation and restrictions
While one hard inquiry likely won’t cause a significant drop in your credit score, it’s still wise to keep them to a minimum as possible. Applying for multiple credit products in a short period can result in multiple complex inquiries piling up, which can significantly impact your results. Most credit scoring models consider inquiries from the last 12 months when calculating your score. Additionally, multiple inquiries for mortgage, auto or student loans within a short period (usually 14-45 days) can be counted as one inquiry, allowing you to choose your rates.
Bottom line
Soft inquiries do not affect your credit score, while hard inquiries may cause a small, temporary rating decline. Before you apply for new credit, check your credit reports to keep track of your inquiries, and try to avoid unnecessary applications and credit checks whenever possible.