Hard And Soft Credit Checks - What Are They?

Hard and Soft Credit Checks

If it's been a while since you've checked your credit report, you may be shocked when you get to the "inquiries" or "credit checks" section.

You may see a slew of credit report inquiries from various companies from whom you know you didn't ask for credit.

Has this ever happened to you?

Before you get your knickers in a bunch, though, you must take a deep breath and remember one thing about credit inquiries:

They can be either hard or soft.

Here's the truth about both and why some of them don't affect you in any way.

Let's dive right in:

An Inquiry in Layman's Terms

Credit Inquiry

The easiest way to explain a credit inquiry is to define it as a credit report check.

Any time that any person or entity wants to know about your financial habits, they conduct a credit inquiry that gives them an idea of what to expect from you.

Examples of those who conduct credit checks are:

The Truth

Credit Report

Credit inquiries stay on your credit report for two years.

You don't usually need to do anything to make them drop off the report, but you should still be mindful of them and watch the dates.

Hard inquiries don't just stay on your report for two years. They also have the ability to drop your credit score by as many as five points, although the norm is usually one or two points.

Just one point can knock you out from the ballpark of good to fair, fair to poor and so on, so it does matter.

VantageScore, which is a less popular scoring system, sometimes removes up to 20 points from a person's credit score for an inquiry.

Creditors also view multiple inquiries in an unfavorable manner. If a potential creditor sees that you had other potential creditors perform recent hard inquiries, they may view you as a risk.

Your profile may paint a picture of instability or desperation to them. They don't know your personal story, so they can only go by what they see.

That's why it's important to be mindful of the number of hard inquiries that you initiate. 

Soft inquiries do not affect your credit score. They show up on your report, but some of them are only visible to you.

Hard Checks:

The hard pulls come from a number of institutions and organizations.

You can expect any and every request that financial institution makes to hit your FICO score hard.

Those include:

Soft (Harmless) Checks:

Soft inquiries can come from a multitude of places.

You can initiate a soft inquiry yourself when you do your annual credit check.

You may also initiate it when you contact the credit bureaus and ask them to look at items that are on your credit report.

An employer's check may cause a soft inquiry, as well.

There is another realm of soft inquiries of which you have no control.

They come from marketers, department stores and credit card companies that just want to see if you can qualify for their products.

If you qualify, then those companies may send you offers in the mail. Whenever you see preapprovals in the mail for credit cards, auto loans or mortgages, you can be almost certain that some organization performed a soft check without your knowledge or approval.

Debt collectors may conduct checks on you, too.

These checks do not affect your credit, but you still may not be comfortable seeing them when you view your personal report. In the first case, you can contact the credit bureau and ask them to remove you from the preapproved mailing lists. They can take your name off of such lists for a period of five years. 

For Your Eyes Only

confidential information

Many of the soft inquiries are for your eyes only, meaning that no one can see them but you.

They can shock you at first but your credit report explains that these do not hurt your score and that no one sees them but you

Examples of such soft pulls are car insurance companies, debt collection companies and so forth.

Don't worry about them even though they may have an unsightly presentation.

Mortgage Companies and Mortgage Brokers

There are three times when you have to be especially careful when you are shopping for a product.

Those are when you are doing mortgage shopping, when you are looking for an auto loan, and when you are trying to get approved for a personal loan.

In all instances, you could be dealing with a lender or a broker. Going through a direct lender will usually only result in your credit being run one time.

Brokers, however, and their website tools may end up releasing your information to many lenders resulting in their systems conducting a credit check on you many times.

Be mindful when you are shopping around and make sure to ask if the provider is a mortgage broker or a mortgage lender.

The same applies to auto loan specialists. Make sure you know the party with whom you are dealing.

The Truth About So-Called "No Credit Check" Payday Loans

no credit check loans

Another area that you have to watch yourself in is the area of the payday loans.

So-called no credit check payday loans can be an amazing source of help in times of dire need, but you must watch yourself for marketing tricks.

Many of the payday loan company websites you visit (including ElcLoans) are matching services.

Like the brokers, payday matchers don't actually lend the borrowers money, but they connect consumers with the lenders so that the borrower can get the loan.

The lenders may then conduct individual credit inquiries. They may be harder pulls or soft. Unfortunately, you won't know until you see them on your credit report.

Sometimes, you have to do what you have to do during a financial crisis, but just make sure you know the kind of provider that you give your information to.

Tips for Watching Your Step

watch Your Steps

The key is to try to have as few inquiries on your report as possible.

Credit specialists recommend having only one or no hard inquiries on your report at all times.

Many people fall into the 1-5 range, but less is definitely the best way to be.

If you see a hard inquiry that you do not recognize, you can call the bureau and discuss it.

You may be able to dispute the inquiry and have it taken off of your record.

The last tip is to always ask the party before you allow them to check your credit whether the process will produce a hard or soft inquiry.

if they don't know, then you can assume that it will probably be hard and make your decision whether or not to continue accordingly.

This should give you an idea of how to differentiate between hard and soft credit checks.

Bottom Line

I hope that you enjoyed this tutorial and gained some insight from it.

It was important to us that you know the very best practices and details about inquiries because they can affect your credit adversely.

Please share this information if you like it.