Hard Inquiries vs Soft Inquiries: What’s the Difference?

There’s a myth out there that shopping around for the best rate hurts your credit score – but this is only partially true. There are two types of credit inquiries – hard inquiries and soft inquiries – and only hard inquiries impact your credit score. In this article, we’ll clarify the difference between hard inquiries and soft inquiries, how they impact your credit score, and how you can protect your credit score when you shop for the best rate or apply for credit.

What is a hard inquiry?

Hard inquiries, or hard pulls, occur when a lender or a financial institution—like a bank, credit card company, or mortgage lender—checks your credit report because you are applying for credit. Hard inquiries are typically only made with your permission, they are reflected in your credit score, and they are visible to anyone who checks your credit report. Here are some examples of activities that may generate a hard credit inquiry:

  • Applying for a new credit card
  • Submitting a complete application for a mortgage
  • Requesting an increase to your credit limit on an existing credit card
  • Getting a new cell phone plan

What is a soft inquiry?

Soft inquiries, or soft pulls, on the other hand, can typically be made without your permission, are not reflected in your credit score, and are only visible to you. Soft inquiries occur when someone accesses your credit report for a reason other than an application for new credit.

Some lenders may perform a soft inquiry when you check your rate for credit in order to provide you with a rate quote or a pre-approved offer. Typically, the lender will perform a hard inquiry later on when you submit a completed loan application or receive a loan with them. Here are some examples of activities that may generate a soft credit inquiry:

  • Checking and monitoring your credit score through a service such as Upgrade’s Credit Health
  • Employer background checks
  • Checking your rate for a personal loan through Upgrade
  • Receiving a pre-screened credit offer in the mail

How do hard inquiries impact your credit score?

We know that only hard inquiries impact your credit score – but how much of an impact do they have, and why?

Lenders are typically concerned when they see several hard inquiries on your credit report, particularly in a short time period. The reason for this is that multiple inquiries can lead to multiple new accounts. And each time you open a new account or take on more debt, the risk that you won’t be able to make all your payments increases. Opening several new accounts in a short time period can also be a sign of financial hardship, or that you are likely to start spending beyond your means. For all of these reasons, your credit score will generally decrease when a hard inquiry is submitted.

The amount of points you’ll lose per hard inquiry isn’t set in stone; it depends on your personal credit history. For most borrowers, each hard inquiry will take less than five points off their FICO scores.1

Keep in mind: some lenders choose not to extend credit to borrowers with several recent inquiries on their report—even if their credit score looks good. These lenders might consider a pattern of credit-seeking to be a sign of financial hardship or a higher-risk borrower.

How long do hard inquiries stay on your credit report?

The record of a hard inquiry stays on your credit report for 24 months, but its impact on your credit score lessens with each passing month and is relatively short-lived. In fact, your credit score will usually return to its pre-inquiry level within about six months. Nevertheless, too many inquiries may prevent you from getting approved when you apply for credit, so it’s important to be mindful of your hard inquiries.

How can you manage your hard inquiries?

A few hard inquiries won’t ruin your credit – but its important to be strategic to avoid an outsize impact to your score. Here are some tried and true tips:

1. Don’t apply for credit unless you need it. Ask yourself whether that credit card sign-up bonus is really worth the ding to your credit score.

2. Take advantage of rate shopping windows. For certain types of credit (mortgages, auto loans, and student loans), scoring companies know that it’s smart to shop around for the best rate, so they treat multiple inquiries for the same loan during a certain period of time as just one hard inquiry. Plan ahead and do your rate shopping within a short time window, which varies from 14-45 days, to limit the impact to your score.

3. Take advantage of soft inquiries for rate shopping. Many online lenders allow you to check your rates or see your pre-approved offers with just a soft inquiry. This allows you to gather information without hurting your score. Make sure you know which type of inquiry will be performed before you provide your personal details. Learn more about how applying for credit impacts your credit score.

4. Watch out for surprising hard inquiries. It may seem obvious that applying for new credit will generate a hard inquiry, but other activities can result in a hard inquiry as well. For example, a car rental might perform a hard inquiry if you are paying with a debit card and a cell phone company may perform a hard inquiry before approving you for a new contract. Read the fine print and always ask what kind of credit check will be performed.

5. Monitor your credit. Make a habit out of monitoring your credit score and reviewing your full credit report once a year (https://www.annualcreditreport.com/). If you spot an unauthorized hard inquiry, take steps to fix the error on your credit report. And remember, checking your own credit will never generate a hard inquiry.