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A hard inquiry is a request to check your credit, typically to make a decision about your loan or credit card application. It may shave a few points off your credit score, but it's temporary.
When you check your credit yourself, it's a soft credit inquiry or soft credit check, and it doesn't affect your score.
The Fair Credit Reporting Act places restrictions on when and why your credit report may be checked.
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What is a hard inquiry?
A hard inquiry, also called a hard pull or hard credit check, requires your consent. It is triggered when you apply for credit, such as a mortgage, credit card, auto loan, student loan or personal loan. It doesn't happen if you are only looking for pre-qualification to decide whether to apply.
This inquiry becomes part of your credit report, meaning anyone who pulls your credit can see it. A hard inquiry will remain on your credit report for about two years, but it stops affecting your credit score in less than a year.
🤓Nerdy Tip
When you apply for a credit product that involves a hard inquiry on your credit, you may get an influx of marketing messages from lenders. This happens because credit bureaus sell marketing lists triggered by hard inquiries. But you can opt out, either permanently or for five years. Visit OptOutPreScreen, a service of credit bureaus Equifax, Experian, TransUnion and Innovis, or call 888-567-8688. The bureaus say your request will be effective within five days. Note that you may still receive marketing offers from lenders that use other sources. Opting out does not affect your credit score or your ability to apply for credit or insurance.
How does a hard inquiry affect your credit score?
A single hard inquiry can shave up to 5 points off your FICO score. However, with the most-used FICO model, all inquiries within a 45-day period are considered as one inquiry when you are “rate shopping,” such as for mortgage, student and auto loans. Older FICO models and VantageScore, FICO's competitor, also group inquiries for rate shopping, but into a 14-day period. A VantageScore spokesman said a hard inquiry can shave up to 10 points off a VantageScore.
Most lenders or card issuers will pull a credit report from just one of the three major credit bureaus — Equifax, Experian or TransUnion. So the inquiry will show up on only one of your credit reports. The exception is for a mortgage, when all three credit bureaus are usually checked.
It is smart to limit hard inquiries. Before you apply for credit, check to be as certain as you can that you are likely to be approved so you don't lose score points without getting the approval you seek. Avoid applying for credit on impulse. Consider whether a discount or bonus you are hoping to receive is worth the potential ding to your credit score. If you have excellent credit, a few points may not be a big deal. However, if you have borderline credit quality, think twice.
What is a soft inquiry?
Soft inquiries, also known as soft pulls or soft credit checks, can occur without you knowing about them. If you’ve ever received a credit card offer in the mail, it’s likely that the credit card company did a soft credit check to see if you would likely qualify. The same goes for other types of loan offers, or when a mortgage broker or lender does a pre-qualification or preapproval.
Employers also may do a background check on you, including a look at a modified credit report. While they need your consent to look at your credit report, it's not considered a hard inquiry because it isn't for the purpose of deciding whether to extend you credit.
Most importantly, checking your own credit is a soft inquiry, so it won't affect your score. You can get your free credit report on demand from a personal finance website like NerdWallet. Or, you can use AnnualCreditReport.com to get your reports from the three major credit bureaus. The reports are free, and you are entitled to one from each bureau per week.
When you look at your own credit reports, you'll see soft inquiries listed, but those don't show up on the reports that creditors see.
» LEARN: How soft credit checks work in Canada
Hard credit inquiry or soft inquiry?
Some inquiries can be either soft or hard. If you rent a car, apply to rent an apartment, sign up for cable TV or internet service, open an account at a financial institution, or someone just needs to verify your identity, you may get hit with either a hard inquiry or a soft inquiry. The only way to know ahead of time is to ask the potential landlord or service provider.
Finally, if you believe a hard inquiry is on your credit report but should not be, you can dispute a hard inquiry just as you can other inaccurate information. It's definitely worth pursuing because it could suggest fraud or identity theft.
As an expert in personal finance and credit management, I bring a wealth of knowledge to shed light on the concepts discussed in the provided article. My expertise is grounded in a deep understanding of credit scoring systems, regulations such as the Fair Credit Reporting Act (FCRA), and the intricacies of hard and soft credit inquiries.
Let's break down the key concepts mentioned in the article:
1. Hard Inquiry Overview:
- Definition: A hard inquiry, also known as a hard pull or hard credit check, requires consent and is initiated when applying for credit (e.g., mortgage, credit card, auto loan).
- Duration on Credit Report: A hard inquiry stays on the credit report for about two years.
- Impact on Credit Score: It may temporarily lower the credit score, with a potential reduction of up to 5 points per inquiry.
2. Nerdy Tip:
- Marketing Messages: Applying for credit with a hard inquiry may result in marketing messages from lenders, as credit bureaus sell marketing lists triggered by such inquiries.
- Opt-Out Option: Consumers can opt out of receiving these messages through services like OptOutPreScreen.
3. Effect on Credit Score:
- Rate Shopping Consideration: Multiple inquiries within a specific period (45 days for FICO, 14 days for VantageScore) are often considered as a single inquiry when rate shopping for loans.
- Credit Bureau Variances: Different credit bureaus may be checked based on the type of credit application (e.g., mortgage applications often involve checking all three major credit bureaus).
4. Smart Credit Practices:
- Limiting Hard Inquiries: It is advisable to limit hard inquiries by being confident of approval before applying for credit.
- Consideration for Credit Quality: For individuals with borderline credit quality, careful consideration is recommended due to potential impacts on the credit score.
5. Soft Inquiry Overview:
- Definition: Soft inquiries, also known as soft pulls or checks, can occur without the individual's knowledge.
- Examples: Credit card offers, loan offers, pre-qualifications, and employer background checks may involve soft inquiries.
- Personal Credit Checks: Checking your own credit is a soft inquiry and does not affect the credit score.
6. Inquiries with Dual Nature:
- Hard or Soft: Certain inquiries, such as those for renting a car, apartment applications, or account openings, can be either hard or soft. The nature depends on the specific situation.
7. Disputing Hard Inquiries:
- Procedure: If an individual believes there is an incorrect hard inquiry on their credit report, they have the right to dispute it, similar to disputing other inaccuracies.
- Significance: Incorrect hard inquiries may indicate potential fraud or identity theft, making the dispute process crucial.
In summary, a nuanced understanding of hard and soft credit inquiries, their impact on credit scores, and the associated best practices is vital for informed financial decision-making. The provided information equips individuals with the knowledge to navigate the complexities of credit inquiries and safeguard their financial well-being.
