Financial IQ June 22 2018

What’s the Difference Between Hard and Soft Inquiries?

At the bottom of your credit report, you’ll often notice credit inquiries made by companies. Is the list long? Are the dates close together? Are you in need of more credit? It’s okay. We’ll help you learn the types of credit inquiry and how to minimize them.

What Is a Hard Inquiry?

When you apply for credit, you give the lender permission to pull your credit report. This can lower your FICO score for one year by about five to 10 points and will remain visible on your report for two years. If your score is fairly poor, multiple hard inquiries could cost you a loan, or at least decent terms on a loan.

In these instances, a creditor is looking for signs of risk (your inability to pay back any credit they give you). When a creditor is making an approval decision, it involves a hard inquiry. Credit applications may include the following:

  • Mortgage
  • Apartment rental
  • Credit card (or requesting a credit limit increase)
  • Student loan
  • Personal loan
  • Business loan

Credit access can also be court ordered in relation to child support.

What Is a Soft Inquiry?

When it’s not related to a credit application, it’s a soft inquiry. Your credit score is safe. Most of the time, an existing creditor just wants to get an idea of what interest rate to offer you for their products and services. These inquiries are responsible for the “pre-approved” offers in your mail. Soft inquiries won’t affect your borrowing or purchasing power because they’re only visible to you on your credit report.

Inquiries that do not factor into your credit score:

  • Checking your own credit score
  • Promotional credit card offers or insurance quotes (acting on a pre-approved offer does trigger a hard inquiry)
  • Background checks
  • Opening a phone, cable, or internet service account

Depending on the tool a creditor uses to pull your credit, sometimes these inquiries can actually fall into a gray area. The best precaution is to ask your leasing agency, employer, etc. what kind of credit inquiry they will pull before you apply. If it’s going to be a hard inquiry, keep shopping (or ask for a soft inquiry).

Will I Be Denied Credit Because of a Hard Inquiry?

Rarely. Your payment history and credit utilization rate matter most to a lender. But lenders approve credit based on their judgment of how successfully you manage your finances. According to MyFico, people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries. If it looks like you need money fast, it might imply that you’re overspending or in serious debt. So only apply for credit you can qualify for with your score. Five to 10 points can add up fast.

New debt means more risk, so your credit history will always be reviewed if you want to apply for credit or a loan. To take away fewer points, some credit scoring models will combine multiple hard inquiries that occur within a certain time frame:

  • VantageScores combine mortgage loans and utility connections within 14 days of each other
  • Newer versions of FICO scores give you 45 days instead of 14

How Do I Remove Hard Inquires From My Credit Report?

Hard inquiries can only be removed if they’re inaccurate or if they were pulled without your written permission. Call or write to the lender that checked your credit report to remove the unauthorized inquiry from your file. If you don’t recognize the lender, someone may be trying to apply for credit in your name. If you suspect identify theft, you can impose a fraud alert on your credit. Any credit given within the next 90 days will require hard copies of your identification. Inquiries are actually the least important items to remove from your credit report

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