By- Deepti Verma
Your credit report faces evaluation whenever you request a loan or credit card or when you check your credit score. The process of reviewing credit information leads to the creation of credit inquiries. The two main types of credit inquiries exist as hard inquiries and soft inquiries. The distinction between these two types of inquiries matters because they produce different effects on your credit score.
What is a Hard Inquiry?
A lender conducts a hard inquiry (also known as a hard pull) to review your credit report before approving your loan application. A financial institution conducts a full review of your credit history when you apply for home loans or car loans or new credit cards.
Your credit report shows hard inquiries which cause a brief reduction in your credit score. A single hard inquiry typically causes a 5-to-10-point decrease in your credit score. The temporary effect of hard inquiries on your credit score becomes more severe when you have multiple inquiries within a brief time period because it indicates financial difficulties which may prevent loan approval.
Examples of hard inquiries:
- Mortgage applications require hard inquiries to proceed.
- The process of getting personal or auto loans requires hard inquiries to be performed.
- The process of obtaining credit card approval requires a hard inquiry to be performed.
- The process of applying for rental agreements which include landlord credit checks requires a hard inquiry.
What is a Soft Inquiry?
A soft inquiry (also known as a soft pull) allows credit checks without any impact on your credit score. The system performs soft pulls automatically without your consent and these checks do not influence loan approval decisions. The process of checking your credit score online or receiving pre-approved credit card offers results in soft inquiries which get recorded on your credit report.
Your credit report shows soft inquiries but these entries remain hidden from lenders while being accessible to you. Your ability to borrow money and your credit score calculation remain unaffected by these inquiries.
Examples of soft inquiries:
- Checking your own credit score
- Pre-approved credit card or loan offers trigger soft inquiries.
- The process of employment background checks requires soft inquiries.
- The process of applying for insurance coverage requires soft inquiries.
Key Differences Between Hard and Soft Inquiries
- Impact on Credit Score: Hard inquiries can lower your score slightly; soft inquiries have no effect.
- Purpose: Hard pulls are tied to lending decisions; soft pulls are more for information or pre-screening.
- Visibility: Hard inquiries are visible to lenders on your report; soft inquiries are only visible to you.
- Duration: Hard inquiries remain on your credit report for two years but soft inquiries do not affect your report.
Why It Matters
Your credit score functions as a vital financial tool that guides your entire monetary path. Your understanding of hard and soft inquiries will help you decide when to seek credit through better decision-making. Your credit score remains healthy when you prevent unneeded hard inquiries but you can stay aware of your financial situation through regular soft pull checks of your report.
Conclusion
A hard inquiry functions as a lender’s assessment mark for creditworthiness but soft inquiries operate as discreet background checks. The process of credit management includes both types of inquiries yet only hard inquiries impact your credit score. Your credit profile remains protected when you stay informed about credit opportunities through awareness of your credit status.
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