Credit Inquiries: The Difference Between Hard and Soft Inquiries

Many consumers understand that if multiple inquiries about their credit are made to the major credit reporting bureaus, that can have a negative impact on their credit rating. What many people are not aware of, however, is the fact that there are different types of credit inquiries. One type is not likely to produce an ill effect in terms of lowering an individual’s credit score, while frequent inquiries of a different type could trigger a temporary decline in the credit rating.

Because of the potential impact that a credit inquiry can have on you, before you apply for any type of credit account, it pays for you to know whether the account issuer will initiate a hard or a soft credit inquiry.

What Is a Soft Credit Inquiry?

Soft credit inquiries are requests for credit information that are usually made as part of an overall background check. The purpose of the inquiry may or may not have to do with the issuance of some type of credit account, although many credit card issuers who send out preapproved card offers do employ soft inquiries. Employers also commonly make use of the soft inquiry method when checking the background of a prospective employee in order to determine if they should hire the individual.

Additionally, if you request copies of your consumer credit report from any or all of the three main credit reporting agencies, you will be initiating a soft inquiry.

Contrary to popular opinion, this type of inquiry will not have an adverse affect on your credit rating.

What Is Involved With a Hard Inquiry?

A hard inquiry is a request by a lender, credit card issuer or other party for information on an individual’s credit and loan activity, information that is normally gathered for the express purpose of considering an application filed by the person in question. For example, if you choose to fill out an application for a department store credit card, the store will seek to obtain copies of your credit report in order to determine if you meet their criteria for credit. Similarly, if you submit a mortgage application, that will trigger a hard inquiry.

This type of inquiry will have some impact on your overall credit score. In most cases the drop in the rating is negligible, although the effects may be seen for anywhere from a couple of months to a couple of years. Frequent hard inquiries, however, can collectively lower your credit rating by a noticeable amount. For this reason, it’s in your best interest to not make a habit of applying for credit and loan accounts on a whim.

Should I Worry About the Number of Inquiries Conducted on My Credit?

For the most part, there is no need to be concerned about any soft inquiries made regarding your credit. Since those usually have to do with an entity trying to determine if you might be a candidate for credit of some type, even several different inquiries over a couple of months will not make a difference.

When it comes to hard inquiries, that is another matter. Since those inquiries indicate that you are actively attempting to obtain a mortgage or credit card, rent an apartment, or acquire something else that has financial significance, they obviously are initiated in order to help an entity decide what to do with your application for whatever it is you are trying to get approved for, and you definitely want to keep them to a minimum.

Rather than using a scattershot approach and applying for all sorts of different types of accounts within a short period of time, make sure that you only submit applications for credit or loans that you really need. Along with helping to minimize the potential of creating chaos with your household budget, this approach will also help you avoid lowering your credit rating by a few points without getting some benefit in return.