Soft Inquiry vs. Hard Inquiry: 4 Key Differences

If you are planning on applying for a loan, you may have heard how a hard inquiry or a hard credit check, by lenders can damage your credit score. But is it really as bad as they say it is? Well, it really depends on whether it is a soft inquiry or a hard inquiry. 

So what’s the difference between a hard inquiry and a soft inquiry? How do they impact your credit score? In this soft inquiry vs. hard inquiry comparison post, we will discover the difference between these two credit checks so you can prepare yourself accordingly.

Read on.

What Are Credit Checks?

A credit check or a credit inquiry is an inquiry of your credit report that is pulled by lenders and financial companies when you apply for a loan. It is carried out to get an idea of your financial history and standing so lenders can make the right decision of approving or rejecting your loan.

Lenders can request your credit report from the three big credit bureaus, Experian, Equifax, and TransUnion.

There are two types of credit checks, soft credit checks and hard credit checks. While hard credit checks do impact your credit score, soft credit checks don’t really affect your credit score.

Continue reading to learn in detail about these two types of credit checks and find out how they differ from each other.

Soft Inquiry vs. Hard Inquiry: Everything You Need to Know

What Is a Hard Inquiry?

A hard inquiry, or hard credit check, is a complete credit check made by lenders and financial companies to review your credit report. It is carried out when you apply for a loan or when you open a new account.

A hard inquiry allows your lender to see if you have applied for any other forms of credit. It stays on your credit report for up to two years and also affects your credit score, especially if there are too many hard inquiries on your report.

Multiple hard inquiries make you look like a riskier individual to the lenders. However, you shouldn’t stop shopping around for the best loan because the FICO model considers all hard inquiries made within a duration of 45 days as one inquiry. 

What Is a Soft Inquiry?

A soft inquiry, or soft credit check, is a partial check of your credit report that allows lenders to determine your eligibility. It is carried out by lenders when you are shopping around for loans. It can also be done by you to check your credit score.

A soft inquiry does not affect your credit report. No matter how many soft inquiries you have, your credit score remains unaffected. In fact, it is recommended to keep getting soft inquiries of your credit report so you can find and correct any mistakes timely.

Soft inquiries are also carried out by potential employers during their screening process. Insurance companies also get soft inquiries to calculate your eligibility and price their policies. 

Hard Inquiry vs. Soft Inquiry: What’s the Difference?

The main difference between a soft inquiry and a hard inquiry is that a soft inquiry is done when someone is only trying to find your credit information. Whereas a hard inquiry is done when a lender is planning on approving your loan. 

Some other differences include:

1. Purpose

Soft inquiries are only done for informational purposes. They are not a deciding factor for approving or rejecting a loan. On the other hand, the purpose of a hard inquiry is to make lending decisions.

2. Impact On Credit Score

Soft inquiries do not affect your credit score at all, no matter how many of them are done. Whereas a hard inquiry affects your credit score by less than 5 points. 

3. Permission Requirement

When someone wants to take out your soft inquiry, they don’t require your permission. On the other hand, a hard inquiry requires the individual’s permission as it impacts their credit score.

4. Inclusion On Credit Report

A soft inquiry is reflected on your credit report for two years but is not visible to creditors. On the other hand, hard inquiries are reflected on the credit report and remain visible for two years. 

Preparing Yourself For a Credit Inquiry

If you are applying for a loan, you should know that your lender will be checking your credit report. Therefore, make sure to check your credit report first to see if there are any errors. 

You can dispute these errors by getting in touch with credit bureaus. You can also try to consolidate any existing debt to improve your credit score before applying for a new loan.

Conclusion

We hope this soft inquiry vs. hard inquiry comparison guide helps you understand the difference between a hard inquiry and a soft inquiry. The next time you apply for a loan, make sure to shop around and get prequalified from different lenders to get multiple loans. 

Don’t worry! Prequalification does not result in a hard inquiry. Your lenders will only run a soft credit check to give you a quote.