There’s a common misconception that any time your credit report is pulled, your credit score will take a hit. Fortunately, this isn’t the case. Understanding the difference between hard and soft credit inquiries can help you manage your credit.
What is a hard inquiry?
A hard inquiry (also referred to as a hard pull) happens when you apply for a new loan product such as a credit card or auto loan Note: Rental and utility applications may also lead to hard inquiries.
Common types of hard inquiries:
What is a soft inquiry?
There are two different types of soft inquiries: requests from yourself or from an outside party.
Common types of soft inquiries:
How do hard and soft inquiries affect your credit score?
Hard inquiries will lower your credit score, but on the bright side, the hit your credit score
will take isn’t very large — credit inquiries only account for 10 percent of your overall FICO credit score. Generally, credit scores drop by 5 to 10 points after a single hard inquiry and can bounce back from this drop reasonably quickly. A soft inquiry won’t affect your credit score at all.
How can you reduce the impact of hard credit inquiries?
You can’t always avoid hard inquiries, but you can minimize the impact they have on your credit score. When you apply for a new credit card, each application will result in a hard inquiry. It’s a good idea to know what card you want and how likely you are to be approved before you apply, and to space out credit card applications by at least six months.
What if you have multiple hard pulls in a short amount of time?
If you’re shopping for a new auto, mortgage or student loan, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days. This allows you to check different lenders and find out the best loan terms for you. (This exception does not apply to other types of loans, such as credit cards.)
While all hard inquiries resulting from loan applications were once considered separate events by credit scoring models, that hasn't been the case for many years. FICO® and VantageScore have evolved in their treatment of multiple inquiries as a way to avoid unfairly penalizing a consumer for being a smart rate shopper.
In the contemporary versions of FICO®'s credit scores, for example, hard inquiries related to mortgage, auto loan, and student loan applications are entirely ignored for 30 days from the date of the inquiry. So if you settle on a loan during that 30-day time period, your scores will not be affected by inquiries.
After those inquiries have aged past 30 days, they still may not be counted as independent inquiries by credit scoring models. That's because FICO® considers similar loan-related inquiries that have occurred within 45 days of each other as a single inquiry in the scoring process.
For example, if you shopped around for an auto loan with five different lenders over a period of 45 days, FICO® would consider those five hard inquiries as one hard inquiry for credit scoring purposes. This is because the inquiries all occurred within 45 days of each other, and FICO® understands that you were rate-shopping for one loan, not five loans.
In VantageScore's credit scoring systems, all hard inquiries that occur within 14 days of each other are considered as one inquiry for the scoring process. This applies to all hard inquiries, regardless of the lender.
Have Questions About Your Credit Report or Score?
Our partners at GreenPath Financial Wellness, a national non-profit, can help. GreenPath’s counselors can walk you through a free review of your credit report. They will explain how to read the report and how credit scoring works, and answer your questions. Contact GreenPath at 877-337-3399 or visit www.greenpath.com/partner/nepa to learn more.
To read more on this topic visit CreditCards.com.
