When your credit report is accessed by yourself or a third party, a record of the inquiry appears on your credit report. The information may include the name of the party that pulled your credit, the date your credit report was pulled, the type of inquiry and more.
But not all types of inquiries are the same: some can affect your credit score, while others do not. Here’s the difference between hard inquiries and soft inquiries on your credit report.
When you apply for a credit card, mortgage, auto loan or another type of credit, the lender checks your credit report and credit score with one of the major credit bureaus. This is a hard inquiry and it can affect your credit score.
Hard inquiries can cause a small dip in your credit score, especially if you submit too many applications for credit in a short time frame. Too many applications in a small period of time also may be a red flag for lenders. That’s because it could appear that you are desperate for credit and having trouble making payments or managing your debt.
However, many credit scoring models do account for the possibility that you’re shopping around for the best rate. Most models consider multiple inquiries for the same type of credit, such as an auto loan, in a predetermined amount of time as a single inquiry. This may not affect your credit score as much compared to hard inquiries for multiple types of credit.
There are a few ways you can minimize the impact of hard inquiries on your credit. First, you should avoid applying for multiple types of credit around the same time. Second, when shopping around for the best interest rate, try to limit your applications to a brief time frame.
Hard inquiries remain on your credit report for about two years, but their impact on your credit decreases over time. They do not affect your credit as much as other factors, such as payment history and credit utilization ratio.
When you check your own credit report or you give a third party permission to check your credit unrelated to a credit application, this is a soft inquiry. For example, pulling your credit report with a credit monitoring service is a soft inquiry. Soft inquiries also occur when a business checks your credit to extend you a pre-approval offer, such as a credit card.
Soft inquiries do not affect your credit score.
Watch Out for Inaccurate Inquiries
Hard inquiries for credit applications you don’t recognize could be a mistake or a sign of identity theft. If someone has pulled a hard inquiry due to an inaccuracy or fraudulent activity, you want to have that inquiry removed from your credit report.
Keep in mind that when you shop around for credit, companies may send your info to multiple lenders to get you the best rate. If you don’t recognize the company that performed the hard inquiry, you may want to verify the inquiry before you go through the work of disputing it.