hard inquiry vs. soft inquiryWhen it comes to having your credit checked by a credit card issuer or a prospective landlord, you might have heard that there are two types of credit inquiries: hard inquiries and soft inquiries. It can be confusing to know which one a situation will call for, but it’s important to understand the differences between the two inquiries and which one to expect. That’s because hard inquiries have an impact on your credit scores, whereas soft inquiries don’t. Too many hard inquiries in a close amount of time can be detrimental to your credit health, but if you don’t know for sure when one might happen, it can be hard to protect yourself and plan accordingly. To ensure you don’t walk into any future credit situations blind, we’re exploring how these two types of credit checks differ and when you can expect to run into them.

What is a credit inquiry?

Essentially, a credit inquiry — also referred to as a credit check or a credit pull — happens when a creditor, or someone else you intend to do business with, checks your credit reports. This is typically done via one of the three big credit bureaus (Equifax, Experian and TransUnion), though there are other lesser-known credit bureaus that sometimes get used. Because credit bureaus collect all sorts of information on individuals, they can give would-be creditors the data necessary to make a decision. Credit inquiries are performed to help creditors evaluate whether or not it’s an acceptable risk to lend you money, rent you an apartment or otherwise take a chance on you financially. Not all credit inquiries require the same level of access to your information, and as such, there are two types of inquiries that can be performed — a hard inquiry or a soft inquiry. The former is the more in-depth of the two, and it gets reflected on your credit reports which can impact your credit scores. The latter is more of a surface-level “spot check” that does not show up on your credit reports.

When is a hard inquiry performed?

A hard inquiry is a request of your full credit report, which means the creditor will be able to see every detail — from your credit accounts to public records. When a hard credit request is performed, it will be noted on your credit reports in the future. As such, credit inquiries are one of the factors that go into how your credit scores are calculated. Usually, the credit inquiry will show up only on your credit report from the credit bureau which the creditor used to perform the inquiry. They make up approximately 10% of your credit scores, under the category “new credit.” Because of this, it’s important to do your best to avoid any action that could cause multiple hard inquiries from being added to your credit reports in a short span of time — not only can this make your credit scores go down, but future lenders might see a ton of inquiries as a sign that you are impulsive or unable to successfully obtain credit.

Situations when you can expect a hard inquiry include …

  • When you apply for a new credit card, mortgage or loan.
  • When a prospective landlord checks your credit.
  • When you open a utilities or mobile phone account.

How long do hard inquiries remain on your credit reports?

Whether or not you are approved for your credit application, any hard inquiries performed will remain on your credit reports for two years. That doesn’t mean that they impact your credit scores significantly — according to FICO, a single hard inquiry is likely to only knock off a few points from your credit scores. It’s multiple inquiries within a short period of time that will truly hurt you, as that indicates you are at a high risk of missing payments or paying late, defaulting on your accounts or even declaring bankruptcy.

When is a soft inquiry performed?

Soft inquiries tend to be done when there is no true financial commitment on the line — such when a company you’ve already given access to your credit reports performs a routine credit check (e.g., if your credit card issuer wants to assess whether to give you a credit limit increase) or when an employer looks at your credit as part of a background check. Because they aren’t as in-depth, soft credit inquiries will not be recorded on your credit reports and have absolutely zero impact on your credit scores. In fact, checking your own credit reports is a soft inquiry and does not hurt your credit scores, which means you should feel free to check your own credit as often as you like (something you can do easily with the help of a credit monitoring service).

Situations when you can expect a soft inquiry include …

  • When you check your own credit reports.
  • When you use pre-approval tools to determine cards you qualify for or what interest rates you might get on a loan.
  • When your credit is reviewed by your existing creditors.
  • When someone performs a background check on you (e.g., an employer).

Should you avoid hard inquiries?

Ultimately, credit inquiries are a part of life these days. If you’re worried about the potential impact of a hard inquiry on your credit scores, the best option you have is to plan for it. Want to apply for a new credit card? Do your research beforehand to determine what kind of credit scores typically get approved and make sure to check your scores to ensure you’re where you need to be. You can also view your credit reports to see what kinds of inquiries are currently listed, as that can be a helpful gauge to tell if you should be avoiding any new inquiries for the time being. Hard inquiries are not going to completely wreck your credit, so long as you don’t overdo it. Ultimately, if you’re approved, then your new account will quickly negate any decrease in your credit scores that occurred as a result of the inquiry.

To learn more about managing your credit, keep reading our credit monitoring blog.