When you apply for a loan, credit card, or other type of financial product, the lender will typically check your credit history to assess your creditworthiness. This process, known as a credit inquiry, can either be a hard inquiry or a soft inquiry. Understanding the difference between these two types of inquiries and how they impact your credit score is important for managing your credit and making informed financial decisions.
What is a hard inquiry?
A hard inquiry, also known as a hard pull, is a credit inquiry that occurs when you apply for a new line of credit or loan. Hard inquiries are recorded on your credit report and can affect your credit score. When a lender makes a hard inquiry, they are requesting a copy of your credit report and credit score from one of the three major credit bureaus (Experian, Equifax, or TransUnion). Hard inquiries typically occur when you apply for a mortgage, car loan, personal loan, or credit card.
How hard inquiries impact your credit score
Hard inquiries can have a negative impact on your credit score, although the impact is usually minimal. According to FICO® each hard inquiry can lower your credit score by less than five points, and multiple hard inquiries within a short period of time can have a greater impact. However, the impact of a hard inquiry on your credit score typically fades over time, and it is not a significant factor in the long term.
What is a soft inquiry?
A soft inquiry, also known as a soft pull, is a credit inquiry that does not affect your credit score. Soft inquiries occur when you check your own credit report, or when a lender or creditor checks your credit for a pre-approved offer or account review. Soft inquiries are not recorded on your credit report and do not impact your credit score.
Difference Between Soft and Hard Inquiries
The main difference between a hard inquiry and a soft inquiry is how they affect your credit score. Hard inquiries are recorded on your credit report and can impact your credit score, while soft inquiries are not recorded and do not impact your credit score.
Examples of hard and soft inquiries
Here are some examples of hard and soft inquiries:
- Applying for a mortgage or car loan
- Applying for a credit card
- Applying for a personal loan
- Checking your own credit report
- Receiving a pre-approved credit card offer
- Having a creditor or lender review your account
- Employment or rental background check
The Rate Shopping Exception
If you are shopping around for a mortgage, car loan, or other type of loan, it is common to compare rates and terms from multiple lenders. This can result in multiple hard inquiries on your credit report within a short period of time. However, the credit bureaus recognize that rate shopping is a normal part of the loan process and have implemented a rate shopping exception to minimize the impact on your credit score.
Under the rate shopping exception, credit bureaus will group multiple hard inquiries from the same type of loan within a certain time frame (usually 14-45 days) as a single inquiry. This means that if you apply for a mortgage with multiple lenders within a short period of time, the credit bureaus will only count the hard inquiries as a single inquiry on your credit report. This can help to reduce the impact on your credit score and make it easier to compare loans.
How to Dispute Hard Credit Inquiries
If you believe that a hard inquiry on your credit report is incorrect or unauthorized, you have the right to dispute it. Here is how to dispute a hard credit inquiry:
- Review your credit report: First, review your credit report to verify that the hard inquiry is indeed incorrect or unauthorized. You can obtain a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once per year through annualcreditreport.com.
- Contact the credit bureau: If you find an incorrect or unauthorized hard inquiry on your credit report, contact the credit bureau that is reporting it. You can do this by phone, email, or online through their dispute process. Be sure to provide any supporting documentation that may help to verify your dispute, such as a copy of your credit report or a letter from the lender indicating that the inquiry was unauthorized.
- Contact the lender: If the credit bureau is unable to resolve the dispute, you may also need to contact the lender that initiated the hard inquiry. You can request that they remove the hard inquiry from your credit report if it was made in error or without your authorization.
- File a complaint with the Consumer Financial Protection Bureau (CFPB): If you are unable to resolve the dispute through the credit bureau or the lender, you can file a complaint with the CFPB. The CFPB is a federal agency that protects consumers from unfair, deceptive, or abusive practices in the financial industry.
Keep in mind that disputing a hard credit inquiry can take time and may require some effort on your part. However, it is important to address any errors or unauthorized inquiries on your credit report, as they can have a negative impact on your credit score and financial opportunities.
Understanding the difference between hard and soft credit inquiries is important for managing your credit and making informed financial decisions. Hard inquiries, which occur when you apply for a new line of credit or loan, are recorded on your credit report and can impact your credit score. Soft inquiries, on the other hand, do not affect your credit score and are typically used for pre-approved offers, account reviews, and background checks. If you believe that a hard inquiry on your credit report is incorrect or unauthorized, you have the right to dispute it with the credit bureau and the lender. By staying informed and managing your credit responsibly, you can help to maintain a healthy credit score and access financial opportunities.