What Is a Hard Inquiry?

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When applying for credit cards, financing or loans, I am sure you have heard the term hard inquiry or hard pull. A hard pull is the term lenders and financial institutions use when they pull your credit history after you apply for credit or a loan.

When you request a line of credit or a loan from a financial institution, they will often ask if they can perform a hard inquiry on your credit. In order to assess your credit, the lender will need your written or verbal consent to proceed. This allows the lender or financial institution to proceed and review your credit history.

The lender will review the information on your credit report and this is how they determine your creditworthiness. The lender assesses the risk they are taking in extending you a line of credit or a loan.

When a financial institution performs a hard inquiry, it will impact your credit file. So it is crucial to understand how a hard inquiry will affect your credit. To maintain your credit health, you should understand the items in your credit history lenders look at when extending you a line of credit or a loan.

Soft vs. Hard Credit Check

When a lender needs to review your credit, they have two options: a soft inquiry and a hard inquiry. When performing a hard inquiry on your credit, the lender must have your authorization before initializing the inquiry. Employers, individuals, or creditors can perform soft inquiries without your knowledge or permission.

You have most likely performed a soft inquiry on your credit if you have ever pulled your credit off Experian or Credit Karma. A soft inquiry shows the same information when you pull your credit report, credit lines, loans, payment history, and collections accounts. Many credit card pre-approvals, employer background checks, and landlords perform a soft inquiry. Soft inquiries do not affect your credit score and, many times, will not even show up on your credit report.

  • Soft credit inquiries do not affect your credit score
  • They show less information than a hard inquiry

Soft credit inquiries have no impact on your credit score. If a lender checks your credit report, soft credit inquiries won’t show up at all. Soft inquiries are only visible on consumer disclosures—credit reports that you request personally.

Examples of soft inquiries:

  • Personal credit checks
  • Pre-approved credit offers
  • Insurance applications
  • Account reviews by current creditors
  • Employment applications

Hard inquiries show up on your credit report and contain a complete view of your credit history. You will always have to authorize a hard inquiry on your credit since it will affect your credit score and show up on your report.

A hard inquiry contains more information for the lender. There is much more a lender will review than your credit score. Each lender has specific criteria they review before extending credit.

A hard inquiry allows creditors to review information such as your debt to income ratio, which is one of the critical factors in their decision-making process.

  • Lenders perform hard inquiries before they extend credit.
  • Hard inquiries will cause a decrease in your credit score.

Debt to income enables the creditor to examine what percent of your income is used for debt repayment each month. If your income is $4000 a month and $3000 is utilized for debt repayment, how can you afford a $700 mortgage? Money has to be set aside for food, utilities, insurance, and transportation. A hard inquiry allows the lender a more detailed view of your credit health than a soft inquiry.

Examples of hard inquiries:

  • Loan applications (mortgage, auto, student, personal, etc.)
  • Credit card applications
  • Requests for credit limit increases
  • Applications for lines of credit
  • New utility applications
  • Apartment rental applications
  • Collection agency skip tracing

Main Differences Between Soft and Hard Inquiries?

Soft InquiriesHard Inquiries
Don't affect your credit scoreAffect your credit score
Done by creditors to provide preapproved offersDone by creditors and lenders when you apply for credit or a loan
Can be done without your consentNeed to give written consent

When Do Hard Credit Inquiries Occur?

A hard inquiry occurs when applying for a mortgage, loan, or credit card. Before performing a hard inquiry, you will be asked to give written or verbal consent to proceed with the hard inquiry. Here are several situations when you can expect a hard inquiry to occur on your credit:

  • Auto loans – When you apply for an auto loan, the dealership will check your credit to determine your financing options. Some dealerships offer a pre-approval process which is a soft inquiry. This allows you to shop around financing and prices at each dealership.
  • Mortgage – When purchasing a home, the lender will evaluate all the details in your credit report before making a decision. A hard inquiry for a mortgage is the least common since most people only take out 1 to 2 mortgages in a lifetime.
  • Credit cards – One of the most common examples of a hard inquiry occurs is applying for a credit card. Many credit card companies will give you the option to apply for a pre-approval. These are soft inquiries and allow you to see what company you will be approved with and what product best suits your needs and credit situation.
  • Car lease or rental – Similar to applying for an auto loan, a hard inquiry is done when you lease a vehicle. Rental car companies may also ask for a hard inquiry if you are using a debit card to pay for your rental.

Does a Hard Inquiry Affect Your Credit Score?

Hard inquiries affect your credit score and stay visible on your credit report for up to two years. Hard inquiries can lower your scores by a few points or have a negligible effect on your scores. In most situations, a single hard pull on your credit will not play a significant role in whether the lender approves you for a loan or credit card.

Although the hard inquiry will show up on your credit report for about two years, the damage it does will usually decrease or disappear before it even drops off your credit report. So even if it is still visible, that does not mean it is impacting your credit score anymore.

With this in mind, it is best to do all of your rate shopping for mortgages, student loans, or auto loans within a short period. The credit reporting agencies will record this all as a single hard credit inquiry on your report, even though multiple lenders may have done a hard credit check.

How Many Points Does a Hard Inquiry Affect Credit Score?

As a standard rule, a single hard inquiry will impact your credit score by 1-5 points. Under certain circumstances, a series of hard inquiries could each add up to 10 points to your credit score.

If you suddenly go out and apply for a new cell phone and three new credit cards, each hard pull can go up as high as 10 points. There is no exact formula for how it will affect your credit, so if applying for a new credit card, apply for a pre-approval first as these only do a soft pull. Many lenders will list their qualifications, such as income and credit score requirements, and these are great resources so you do not waste time applying for a product that will not approve you.

Can You Avoid Hard Credit Inquiries?

Hard inquiries are required if you are applying for a loan or line of credit with a lender. Although you cannot avoid a hard inquiry in certain situations, there are ways that you can avoid having more than one hard inquiry pulled on your credit.

Many lenders initially offer a pre-approval if you are in the process of applying for credit cards or auto loans. These are soft inquiries that do not affect your credit, so completing these to see if you may qualify for a loan product will help reduce the number of hard inquiries.

Conclusion

Credit agencies require a hard inquiry to review your creditworthiness when applying for a loan or line of credit. Preparing for a hard inquiry will reduce its effect on your credit score. Educating yourself on what lenders look at and how they judge creditworthiness will help you understand what impacts your credit and why.

When applying for a new loan or credit card, it is ok to ask questions about their qualifications when reviewing your credit. I worked in finance for years with hundreds of lenders, and each one had specifics they review when making decisions on extending credit. I have seen subprime lenders put more significance on job and residence time than credit scores. Stability was a key factor they looked at when deciding on lending or opening a line of credit for a new customer.

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