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When you are building your credit, what seem like simple acts can impact your credit score. Each time a prospective lender checks into your credit history a 'mark' is left. While the FICO site does not list these terms, the common way to refer to these credit checks are as "hard pulls" or "soft pulls".
Hard credit inquiries (or hard credit pulls) affect your credit, dropping your score slightly.
Soft credit inquiries (or soft pulls), on the other hand, do not affect your score.
So what is the difference between hard and soft credit inquiries? And why do they have different affects on your credit scores?
Let's find out.
What Are Soft Pulls?
Everyone has received pre-approved offers for credit in the mail. Pre-approvals are “soft” checks. They do not appear to other lenders that may check your credit.
Other examples of soft credit pulls are:
- Pre-approval letters issued by a prospective mortgage lender when you are looking to buy a house.
- Using a credit card issuer's "pre-approval" tool.
- Credit reports that you request from one or all three of the credit reporting agencies.
- Credit checks by some employers.
- Credit checks by your current credit card company during the life of your account.
- Credit checks by your insurance company.
These soft pulls are not always authorized by you. There are times when you may not have any knowledge that these credit checks.
But the good news is that soft pulls do not affect your credit score in any way. This makes them “safe” for your credit.
The only person that is able to view the soft pulls on your credit report is your.
Even a hard credit pull will not reveal these soft credit checks.
What Are Hard Credit Pulls?
Hard pulls, or hard credit inquiries, are different in the way that they affect your credit. Where soft pulls are only available for viewing by you, hard pulls appear to anyone that is checking your credit. This means that a lender can see how many times in the past few months that you have shopped for lines of credit.
Hard credit checks also have a negative impact on your credit score. Each time a lender performs a hard pull, your credit score can drop by as much as 5 points. And many hard checks over a short period of time can add up to a much lower credit score.
Here are a few examples of hard pulls:
- Credit card applications.
- Opening a new cell phone account!
- Checks performed by some banks when you open an account.
- Activation of pre-approved credit offers. (This is because the lenders performs a deeper check upon activation and "final" approval.)
There is some good news, however!
Hard credit pulls require your permission.
And hard checks are not on your credit history forever, either. Most disappear in about six months. So these type of credit checks will not permanently hurt your credit score.
If a lender (such as someone processing a car loan for you) asks if they may run a credit check on you, this is a hard pull.
If you are shopping for a car or mortgage, you may have several hard pulls in a short period of time. According to MyFico.com, these are not assessed as individual hard pulls, where each inquiry would lower your credit by 5 points. Instead, several credit inquiries of the same type (a mortgage, car loan or student loan) typically count as a single inquiry.
This is not the case with credit cards, however. So select your new card carefully to avoid multiple hard pulls. And maybe ask yourself whether you really need a new store card to save 10% on one purchase.
You should avoid any hard credit pulls or checks for about six months before applying for a mortgage or car loan.
And, if a hard pull appears on your credit report that you have no knowledge of, make a note of it on your report. Ask the reporting agency for clarification and removal if the check was not initiated with your knowledge or without your application for a service. You can also find out how to repair your credit for free.
A Final Word on Credit Checks
Soft and hard credit checks will always be a part of your financial life.
Hard checks can be managed to have little impact on your credit. Horror stories from some websites may cause you to panic, but there is no need. You now have the knowledge to avoid unnecessary hard checks and keep your credit score firmly in your control.