What Is The Difference Between a Soft and Hard Credit Inquiry?

The main difference between a soft and hard credit inquiry lies in who performs the inquiry, why it is performed, and how it impacts your credit score. Both types of credit inquiries involve a credit check that provides information to the lender or company about your credit history, but they have different effects on your credit score and credit report.

1. Soft Credit Inquiry:

A soft credit inquiry occurs when a credit report is pulled for purposes that do not involve a formal application for credit. It does not affect your credit score.

Examples of Soft Credit Inquiries:

• Pre-qualification or Pre-approval for credit cards or loans (no formal application yet).
• Personal credit checks (e.g., checking your own credit report).
• Background checks for employment or rental applications.
• Current credit card issuers reviewing your account for account maintenance or offers.
• Credit card companies checking your credit for promotional offers.

Impact on Credit Score:

• No Impact: Soft inquiries do not affect your credit score. They are considered non-invasive and do not signal that you are actively seeking new credit.

Why It’s Useful:

Soft inquiries allow companies to review your credit without hurting your credit score. For instance, if you're pre-qualified for a credit card offer, the issuer can pull your credit report to determine eligibility without it impacting your score.

2. Hard Credit Inquiry:

A hard credit inquiry occurs when a credit report is pulled as part of a formal application process for credit. This type of inquiry may impact your credit score, often slightly lowering it for a short period.

Examples of Hard Credit Inquiries:

• Applying for a new credit card.
• Applying for a mortgage loan or auto loan.
• Applying for personal loans.
• Applying for a line of credit.
• When a landlord checks your credit as part of a rental application (in some cases).

Impact on Credit Score:

• Temporary Impact: A hard inquiry can lower your credit score by a few points, but the effect is usually small and temporary (lasting up to 12 months). Multiple hard inquiries in a short period can have a greater impact, but they are often treated as one inquiry if they occur within a 14-45 day period (depending on the credit scoring model), especially if they are related to shopping for the same type of loan (e.g., mortgages or auto loans).
• Increased Risk: Lenders may view multiple hard inquiries within a short period as a sign of financial distress or risk, potentially impacting your approval chances.

Why It’s Important:

Hard inquiries are used by lenders to assess your creditworthiness when you're actively seeking new credit. A hard inquiry allows the lender to evaluate your credit history to make an informed decision.

Key Differences Between Soft and Hard Credit Inquiries:

Example:

• Soft Inquiry: Sarah checks her own credit score before applying for a car loan. This is a soft inquiry and does not affect her credit score.
• Hard Inquiry: Sarah then decides to apply for the car loan. The lender performs a hard inquiry to evaluate her credit, which may slightly lower her score by a few points for a short period.

Conclusion:

The key distinction between a soft and hard credit inquiry is that soft inquiries do not affect your credit score, while hard inquiries may cause a temporary drop in your score. It's important to understand the difference, particularly when applying for new credit. Soft inquiries, like those for pre-qualification, are harmless to your credit, but hard inquiries, such as those when applying for a loan or credit card, can affect your credit score and your ability to obtain additional credit. To minimize the impact on your score, try to avoid multiple hard inquiries in a short period unless necessary.