Hard Credit Inquiry Vs. a Soft Credit Inquiry & their Impact on your Credit Score

What is a Credit Inquiry or a Credit Pull?

A credit inquiry, also known as a credit pull, happens whenever you or someone else (namely companies) accesses your credit report for one reason or another. Whether the credit inquiry actually impacts your credit score depends on who initiated the credit inquiry and why they did it.

There are two kinds of credit inquiries – a soft credit inquiry and a hard credit inquiry – and one of them impacts your credit score while the other does not. Knowing the difference between the two and what types of inquiries fall into each category is important for those trying to keep their credit score up. But do they really have a big impact on your FICO score? We’ll take a look.

What is a Soft Credit Inquiry?

A soft credit inquiry, or soft credit pull, is when someone accesses your credit reports without you initiating that action, or when you access them yourself. Because you did not take an action permitting the company to check your credit reports, you are not punished for it. Soft credit inquiries do not impact your credit score. At the same time, accessing your own credit reports has no impact on your credit score. An employer background checks, new utility accounts, and new insurance policies, are considered a soft credit inquiry because they generally don’t lead to debt obligation.

Examples of Soft Credit Inquiries

The following examples of credit inquiries are considered ‘soft credit inquiries’ and do not hurt your credit score:

• Accessing your own credit report.
• When a company checks your credit report to pre-approve you for a loan or some other type of service.
• When a company that you are already a customer of checks in on your credit.
• Potential employer credit check (employee background check).
• Initiating an insurance policy or a new account with a utility.

If you’re like me, I don’t want lenders doing soft inquiries on my credit files and sending me pre-approved offers. If you want to prevent them from doing so altogether, I highlighted how you can do this in my mail fraud identity theft post, through the site optoutprescreen.com.

What is a Hard Credit Inquiry?

Hard credit inquiries, or hard credit pulls, mostly happen when a credit inquiry is initiated due to an action that you have taken that would prompt a company to need to check your credit report. Usually this means you are applying for a financial product or some other service. Hard credit inquiries can potentially impact your credit score negatively.

Examples of Hard Credit Inquiries

The following examples of credit inquiries are considered ‘hard credit inquiries’ and do have the potential to affect your credit score:

• Applying for an auto loan.
• Applying for a mortgage or home equity loan.
• Applying for any other type of loan.
• Applying for a credit card.
• Opening a bank account.
• Initiating a new subscription service where your Social Security number is required (i.e. a new cell phone contract).

How Does a Credit Inquiry impact your Credit Score?

Do you really need to worry about hard credit inquiries significantly damaging your credit score? According to FICO credit score hub, MyFICO, credit inquiries would fall into the ‘new credit’ portion of your FICO score.

The ‘new credit’ category only impacts 10% of your FICO score and hard credit inquiries are only a portion of that category. Also included are:

• the number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

As such, there is no definitive number of points your credit score will go down with each new hard inquiry.

How Long are Credit Inquiries in your Credit Report?

Also part of the ‘new credit’ category is the amount of time that has passed since the credit inquiry. After one year, a hard credit inquiry no longer impacts your FICO score (however, it will stay on your report for two years). There is also another rule in place to help ensure your FICO score is not hurt too much from hard credit inquries:

45 day rate-shopping allowance:

This rule counts multiple similar ‘rate shopping’ inquiries within a 45 day period as just one inquiry. Examples would be when you are applying for multiple mortgages or auto loans to see which offered you the best rate. Credit card applications do not apply.

So, as you can see, credit inquiries can negatively affect your credit score, but only temporarily, and probably not to the extent you were thinking they might.

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