If I had to list the most common questions people ask me about finances, credit inquiries would be at the top.
Usually, people want to know the difference between a soft and a hard credit inquiry, or what the effects of rate shopping are, especially when it comes to buying a house.
Sometimes it feels like these topics are intentionally confusing, even though that’s not necessarily the case. If you’ve ever found yourself asking about any of the above, you’ve come to the right place.
Here’s the lowdown on hard credit inquiries versus soft credit inquiries, and how these affect your credit score.
Hard vs. soft credit report checks
First off, let’s discuss the terminology attached to credit inquiries. Here are some of the most common opposing terms you’ll hear:
- Hard credit inquiry vs. soft credit inquiry
- Soft credit pull vs. hard credit pull
- Soft credit check vs. hard credit check
Essentially a credit inquiry, credit pull, and a credit check all refer to when a lender checks your credit report.
Now you’re probably wondering what makes a credit pull, check, or inquiry “soft” or “hard”? Let’s take a look.
What’s a hard credit inquiry?
A hard credit inquiry, pull, or check is what happens when you apply for credit. You are always going to be the one initiating this activity since your credit application more or less gives the okay for the lender to check your credit.
Since this is something that comes from a credit application, the only way it can happen without your knowledge is if someone steals your identity.
However, that’s not to say you’ll receive a notification when it happens. Therefore, just assume that a hard credit pull is going to happen every time you apply for new credit.
What’s a soft credit inquiry?
A soft credit inquiry, pull, or check is not triggered when you apply for credit. Therefore, unlike a hard credit pull, a soft credit pull can happen without you always realizing it.
However, it can be helpful to you since it’s a way for lenders to see if you are a reliable borrower without having to apply for credit.
A lot of soft credit pulls occur when lenders reach out to credit reporting bureaus to gather a pool of qualified candidates for something they want to offer, like a pre-approved credit offer.
So those credit card offers you get in the mail? Chances are a soft credit pull happened beforehand.
It’s important to note that a credit card offer based on a pre-approval does not mean you’re already approved. You still have to apply for the credit card, after which the lender will do a hard credit pull to decide what to do. Sometimes this results in a modified offer rather than a straight-up approval or denial.
Soft credit checks can also happen when you’re checking your credit score. There are many sites you can use to check your credit score for free – and a soft credit check happens anytime you do that.
Which one will lenders use?
Lenders use hard and soft credit inquiries at different times and under different circumstances.
At the end of the day, it’s important to remember lenders do a hard credit check when you apply for credit such as a loan, a credit card, a refinance, etc.
On the flip side, lenders do a soft credit check when you either apply for a pre-qualification or when they reach out to credit reporting bureaus for a batch of pre-approved consumers.
However, you can reach out to lenders to see if you prequalify for credit. When you send out an inquiry like this, lenders will do a soft credit check to see what kind of offer and interest rate you qualify for. For instance, our student loan refinancing partners will do this when you check your rate.
Once you decide what kind of offer you want and apply for it, a hard credit pull ensues.
How each type of credit check affects your score
A soft credit inquiry does not affect your credit score. According to MyFico, “As far as your FICO® score is concerned, credit inquiries are classified as either ‘hard inquiries’ or ‘soft inquiries’ – only hard inquiries have an effect on your FICO score.”
A hard credit inquiry, on the other hand, does affect your credit score. Thankfully, the effect isn’t massive. Again, according to MyFico, a credit inquiry only takes less than five points off your FICO score.
The time to worry about hard credit inquiries is when you make a lot of them. After all, each inquiry will add up; those few points could start to hit a higher number than you want.
If you want to avoid taking a big hit on your credit score, do all of your loan shopping within the span of a few weeks. Also, don’t vary the type of loan or loan amount you’re applying for.
Say you want to buy a $15,000 car. Shop for rates for about 14 days and always apply for that same amount. The credit reporting bureaus will understand that you’re rate shopping and will batch your inquiries.
On the other hand, if you apply for a car loan, a credit card, and a mortgage, your credit score will take the hit for each separate inquiry.
Your credit score will also go down if you apply for the same type of loan, but for different amounts. For instance, if you apply for one mortgage that’s $200,000 and another for $350,000.
Take your time and do your research
When it comes to shopping for new credit, be prepared. Do your research and use a soft or hard credit inquiry wisely so you can have a realistic idea of how much this new credit is going to cost.
Then, visit your budget to see what you can afford and stick to that amount. That way you don’t blow up your finances and have to worry about inadvertently damaging your credit score in the process.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|