The difference between hard and soft credit inquiries

You are probably aware that when you apply for a loan or credit card, the potential creditor pulls your credit report and score. But you may not know that those credit checks could affect your credit score. Here’s help understanding the difference between hard and soft credit checks and why it matters.

A hard credit inquiry is when a lender pulls your credit report because you’ve applied for new credit, such as a credit card, a car loan, a home loan or an increase to an existing line of credit. Hard credit inquiries can affect your credit score (the most common is your FICO® Score) because seeking new credit can make you seem like more of a risk to lenders, who may worry about your ability to pay back the debt.

Here’s the good news: For many people, the damage from hard inquiries is minor, usually less than five points off your credit score. One or two credit checks will not significantly harm your credit.

Don’t let concern about credit checks keep you from shopping around for the best deal on auto loans, student loans or mortgages. Hard credit checks that occur for specific items like these, and that happen within a certain time frame—FICO calls them shopping periods—are usually treated as a single inquiry. While each lender may use a different formula to calculate a shopping period, it’s typically 14–45 days.

New lines of credit represent only 10 percent of your credit score, according to myFICO.com, but that doesn’t mean you should rack up hard inquiries without giving it a second thought:

• Although credit inquiries are factored into your credit score for only 12 months, they remain on your credit report for two years.
• Inquiries can have a greater impact for someone with a short credit history and few accounts, compared with someone who has a long history and wide range of credit experience.
• To a lender reviewing your credit report, many hard credit inquiries in a short time may indicate higher credit risk because it could appear that you are trying to get a lot of credit quickly. (The exception is if you rate shop for a car, student or home loan during a short period.)
• Drops in your credit score can result in higher interest rates when you borrow, which means you pay more over the life of a loan.

For more information on how your credit score is calculated and what affects it, see our piece on how to improve your credit score.

A soft credit inquiry is when your credit report is checked but you haven’t applied for credit. For example: Insurance companies or potential landlords may look at your credit report to assess risk; potential employers may do background checks; or credit card companies may consider your report before they send you preapproved promotional offers. Soft inquiries do not affect your credit score or show up on your credit report.

To keep your credit score healthy, avoid hard inquiries when you can. Try to say no to those store credit cards offered to you at checkout if they don’t make sense in your larger financial picture. If you rate shop for a car, student or home loan, it’s best to keep it within a 14- to 45-day window so multiple inquiries are recorded as one. Also keep an eye on your credit report. If you see a hard inquiry you did not initiate, take action to protect yourself from identity theft.