When it comes to your credit report, you may have heard the terms “hard inquiry” or “soft inquiry”—but what do they mean?
When potential creditors (e.g., banks, loan providers, credit card companies, etc.) request your credit report, they may use soft inquiries. These types of inquiries provide a high-level overview of your credit. A soft inquiry usually doesn’t have a negative impact on your credit score. Creditors don’t need your explicit permission to request this information.
For example, say you received a credit card offer or application for student loan refinancing in the mail. Before you received those offers, the lender likely pre-screened your credit with a soft inquiry. These types of companies only offer credit to consumers who meet certain qualifications. That means they’re looking for applicants with a credit score meeting their minimum credit standards.
Prospective employers, landlords, and utility companies may do soft inquiries into your credit report to understand how responsible you are. They use your credit history to determine the likelihood you’ll pay on time. This type of information can sometimes factor into whether you’ll have to pay a deposit for utility services.
A hard inquiry is different than a soft inquiry. It does require your permission, and is usually triggered by your active request (i.e., application) for a loan or extension of credit. When you apply for a car loan, student loan, or home loan, the creditor pulls your credit to evaluate your eligibility. With a hard inquiry, the lender looks at your credit score, as well as all relevant details of your credit history to determine your credit worthiness.
Hard inquiries do have an impact on your credit score because they shows you are actively seeking new credit. While a hard inquiry usually has a limited impact on your credit score, its impact depends on your individual circumstances. You may still want to minimize the number of hard inquiries into your credit report just to be safe.
The largest factors determining your credit score are payment history and amounts owed. Read Why Good Credit is Crucial to learn more about your credit score.
Credit Inquiry Tip: The next time you’re looking for a loan pre-qualification or a rate quote, make sure to read the fine print to find out what type of initial inquiry the lender will make on your credit report. Just remember that once you formally apply for the loan, the creditor needs to make a hard inquiry into your credit and review your credit history in much greater detail.