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How Do Soft and Hard Credit Checks Work?

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When you’re applying for a loan, lenders often do credit checks, some of which will affect your credit score. There are two types of credit checks you may encounter.


A “soft inquiry” is a cursory credit check that lenders or credit card issuers can perform to review your credit. A “hard inquiry” is a more detailed look at your credit history. Hard inquiries are usually done by lenders and credit card companies once you submit an application with them. Let’s dive deeper into how soft and hard credit checks work so that you’ll know what to expect when applying for a loan or credit card.


How do soft inquiries work?


Soft inquiries do not affect your credit score. They could be recorded on your credit report, depending on the credit reporting bureau, but you won’t get points taken off your credit score. And since soft inquiries are not connected to a specific credit application, only you will be able to view them on your credit report.


A good example of a soft inquiry is when a lender checks your credit to prequalify you for a loan. Once the lender does a soft inquiry, they’ll tell you what loan terms you can qualify for. Credit card companies also run soft inquiries to check your credit and will then send you a “prequalified” offer if you qualify for the card based on your credit score.


How do hard inquiries work?


Unlike soft inquiries, hard inquiries require your permission. They’re typically performed by lenders and credit card companies when you apply for a loan or credit card.


Hard inquiries can affect your credit score. Prepare for your score to go down a few points shortly after you submit the paperwork for the loan or credit card. It won’t be a significant decrease, but too many hard inquiries can make you appear riskier to lenders. Try to space out your lending or credit card applications to avoid this.


Minimizing the impact of credit checks


You don’t have to worry about soft inquiries, since they don’t have an impact on your credit score. Hard inquiries, on the other hand, can lower your credit score by as much as ten points. That impact typically lasts twelve months, after which both FICO and VantageScore will no longer penalize you for hard inquiries.


To minimize the impact of hard inquiries on your credit score, don’t submit too many loan or credit card applications in a short time period. You can also get hard inquiries for requests for credit limit increases, certain types of utility applications, and rental applications, so try to limit those as well.


The bottom line


Now that you know the effect hard inquiries can have on your credit score, you can try to limit them. A good rule of thumb is to only apply for credit when you need it. You can also keep track of your hard inquiries so that you know how many you’ve had recently and can minimize the amount of loans and credit cards you apply for. Limiting hard inquiries can improve your credit score and help you get approved for better loan terms and credit cards in the long term.


Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

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