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Understanding Hard and Soft Credit Inquiries

This information was adapted for your use from this original article and includes my thoughts: Credit Karma Blog

So many people do not understand how credit works, or what can harm their credit. I've talked to people who were afraid to find out their own credit score or check their credit report because they didn't want to hurt their credit.

Thankfully, their ignorance about the differences between a 'hard inquiry' and a 'soft inquiry' of their credit are easy to fix. Sadly, that same ignorance can lead to problems if people don't learn and understand the differences and get the right information!

Let me be clear: You checking your credit report or score will NOT hurt your credit. There are many ways you can conduct such a 'soft' inquiry and get information. That is something I will talk about more in a different post.

There are also ways you can hurt your credit score, without meaning to in some cases. Conducting a 'hard' inquiry is always going to have some impact on your credit, and is something that should be done with care and with your direct involvement and permission.

So, what is the difference? (This starts the info from the article linked above)

In a NutshellA hard inquiry may impact your credit scores and stay on your credit reports for about two years. By contrast, soft credit inquiries won’t affect your scores.

It can be helpful to think of your credit scores as a pie that represents your financial well-being.

Your pie is divided into slices, each of which represents a different factor that goes into your credit scores. 
Each of these factors impacts your credit, and each does so with a varying level of importance:
  • One large slice is your open credit card utilization rate. 
  • Another is your percentage of on-time payments.  
  • Another is the length of your credit history 
  • And yet another is the number of derogatory marks on your credit reports.
And then there’s a tiny slice that represents your hard credit inquiries. 
Every time you apply for more credit, you take a small bite out of this slice. But what exactly is a hard inquiry, and how much of an effect does it really have on your credit?

Here are some of the basics, which can be found at the link above, to give you a better understanding:

What is a hard inquiry?

Hard inquiries (also known as “hard pulls”) generally occur when a financial institution, such as a lender or credit card issuer, checks your credit when making a lending decision. They commonly take place when you apply for a mortgage, loan or credit card, and you typically have to authorize them.
A hard inquiry could lower your scores by a few points, or it may have a negligible effect on your scores. In most cases, a single hard inquiry is unlikely to play a huge role in whether you’re approved for a new card or loan. And the damage to your credit scores usually decreases or disappears even before the inquiry drops off your credit reports for good.

Common Question

How long will a hard inquiry stay on my credit reports?

Generally speaking, hard inquires stay on your credit reports for about two years.

That doesn’t sound so bad, but you may want to think twice before applying for a handful of credit cards at the same time — or even within the span of a few months. Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer, as it suggests you may be short on cash or getting ready to rack up a lot of debt. 
My Thoughts:
Going through and applying with different lenders to see about getting a better rate can actually do you more harm than good if you aren't careful about it (SEE MORE ON THAT IN THE ARTICLE BELOW)! You could end up paying MORE in interest or find it harder to secure a loan if you don't understand how inquiries work and plan ahead.

Also, applying for multiple credit cards because they have great introductory offers, or to open up more available credit can hurt you much more than it might seem to help. This can also become especially tricky, say, when it gets around the holiday season and people open lines of credit at different stores because they offer you a discount on your purchase that day.

Usually store cards have higher interest rates as well as more fees and restrictions. Be careful and have a budget plan, or you might find yourself pushing the 'pause' button on your home ownership dreams!

What is a soft inquiry?

Soft inquiries (also known as “soft pulls”) typically occur when a person or company checks your credit as part of a background check. This may occur, for example, when a credit card issuer checks your credit without your permission to see if you qualify for certain credit card offers. Your employer might also run a soft inquiry before hiring you.
Unlike hard inquiries, soft inquiries won’t affect your credit scores. (They may or may not be recorded in your credit reports, depending on the credit bureau.) Since soft inquiries aren’t connected to a specific application for new credit, they’re only visible to you when you view your credit reports.

Common Question

Will checking my own credit scores result in a hard inquiry?

No. This is reported as a soft inquiry, so it won’t lower your scores. 

Examples of hard and soft credit inquiries

The difference between a hard and soft inquiry generally boils down to whether you gave the lender permission to check your credit. If you did, it may be reported as a hard inquiry. If you didn’t, it should be reported as a soft inquiry.
Let’s look at some examples of when a hard inquiry or a soft inquiry might be placed on your credit reports. Note: The following lists are not exhaustive and should be treated as a general guide.

Common hard inquiries

  • Mortgage applications
  • Auto loan applications
  • Credit card applications
  • Student loan applications
  • Personal loan applications
  • Apartment rental applications

Common soft inquiries

  • Checking your credit scores on Credit Karma
  • “Pre-qualified” credit card offers you get in the mail
  • “Pre-qualified” insurance quotes you get in the mail
  • Employment verification (i.e. background check)
  • A volunteer service application at a place of worship or non-profit organization
Keep in mind, there are other types of credit checks that could show up as either a hard or soft inquiry. For example, utility, cable, internet and cellphone providers will often check your credit.
If you’re unsure how a particular inquiry will be classified, ask the company, credit card issuer or financial institution involved to distinguish whether it’s a hard or soft credit inquiry.

How to minimize the impact of hard credit inquiries

When you’re buying a home or car, don’t let a fear of racking up multiple hard inquiries stop you from shopping for the lowest interest rates, but be smart!
FICO gives you a 30-day grace period before certain loan inquiries are reflected in your FICO® credit scores. And FICO may record multiple inquires for the same type of loan as a single inquiry as long as they’re made within a certain window. For FICO scores calculated from older versions of the scoring formula, this window is 14 days; for FICO scores calculated from the newest versions of the scoring formula, it’s 45 days.
My thoughts:

If you have a lender pull your credit and then spend the next four months looking without making an offer, you'll end up having to go through the process again. So talk with your lender, talk with your realtor, and have a plan before you take the step! 
As  mentioned earlier, you need to plan and be careful, but you don't need to be fearful! If you are looking at buying a home, check your own credit report and see your credit score. Don't apply for credit until you're actually serious and ready to make offers. You might want to get 'pre-qualified' and thats great. But realize that there is a timeframe on preqalification, so if you are just looking trying to get ideas about what you want, wait a bit. Once you start finding houses you're serious about, get pre-qualified so you're ready to go.

Bottom line

Your credit scores play a big role in your financial well-being. Before applying for credit, take time to check your credit and work to build your credit scores, if needed. With stronger credit, you may improve your chances of being approved for the financial products you want at the best possible terms and rates.


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