The Difference Between A Hard Credit Check And A Soft Credit Check

Last updated Aug. 2, 2024 by Okechukwu Nkemdirim

The Difference Between A Hard Credit Check And A Soft Credit Check

In today’s financial ecosystem, credit checks play a pivotal role in determining a person’s creditworthiness. These checks are crucial for lenders, landlords, and even employers, helping them gauge the financial reliability of an individual. Two primary types of credit checks—hard and soft—serve distinct purposes and have different implications for your credit score. Understanding these differences is essential for managing your credit profile effectively.

What is a Credit Check?

A credit check is an inquiry into your credit report, a detailed dossier of your borrowing history maintained by credit bureaus. The report typically includes information about your credit accounts, payment history, outstanding debts, and other financial activities.

Hard Credit Check

Definition

A hard credit check, also known as a hard inquiry or hard pull, occurs when a financial institution or lender examines your credit report as part of a lending decision. This inquiry is usually mandatory for applications involving credit cards, mortgages, personal loans, and auto loans.

Impact on Credit Score

One of the key attributes of a hard credit check is its impact on your credit score. Hard inquiries can lower your credit score by a small margin, generally between 5-10 points per inquiry. The rationale behind this is straightforward: multiple hard inquiries in a short period may suggest to credit bureaus that you are seeking to take on more debt than you can handle.

Visibility

Hard inquiries are visible to anyone who pulls your credit report, including potential lenders. They remain on your credit report for up to two years, although their impact on your credit score typically diminishes after the first year.

Examples

• Applying for a Mortgage: When you apply for a mortgage, the lender will perform a hard credit check to assess your ability to repay the loan.

• Credit Card Applications: Applying for a new credit card will trigger a hard inquiry by the card issuer.

• Auto Loans: Securing a car loan involves a hard credit check by the financial institution providing the loan.

Soft Credit Check

Definition

A soft credit check, also referred to as a soft inquiry or soft pull, occurs when you or someone else checks your credit report for informational purposes. This type of inquiry does not affect your credit score and is typically not tied to a credit application.

Impact on Credit Score

Soft inquiries have no impact on your credit score. They are purely informational and do not signify a search for new credit or increased financial risk.

Visibility

Soft inquiries are only visible to you and do not appear on the credit reports that potential lenders might review. They usually remain on your credit report for about one to two years but have no bearing on credit decisions.

Examples

• Personal Credit Checks: Reviewing your own credit report is considered a soft inquiry.

• Pre-Approval Offers: When companies pre-approve you for credit cards or loans, they perform a soft credit check.

• Employment Screening: Some employers conduct soft inquiries during background checks to assess your financial responsibility.

Comparing Hard and Soft Credit Checks

Here’s a quick comparison to highlight the key differences:

Feature	Hard Credit Check	Soft Credit Check
Impact on Credit Score	Lowers credit score by 5-10 points	No impact
Visibility	Visible to lenders	Visible only to the individual
Purpose	Credit applications	Informational purposes
Examples	Mortgage, auto loans, credit card applications	Personal credit checks, pre-approvals, employment checks

When To Expect A Hard Credit Check

Understanding when you might face a hard credit check can help you better manage your credit score. Here are some scenarios:

• Loan Applications: Whether it’s a student loan, personal loan, or mortgage, financial institutions will perform a hard credit check to evaluate your creditworthiness.

• Credit Card Applications: Issuing banks perform hard inquiries to decide whether or not to extend credit.

• Renting a Property: Some landlords might carry out a hard credit check to assess if you are financially responsible enough to pay rent on time.

When To Expect A Soft Credit Check

Soft credit checks are common and occur under various circumstances such as:

• Reviewing Your Own Credit: It’s good practice to check your own credit periodically. This does not affect your credit score.

• Pre-Qualification Offers: You may receive credit card or loan offers based on a soft credit check performed by the issuer beforehand.

• Employer Background Checks: For some jobs, especially in the financial sector, employers might perform a soft credit check as part of the hiring process.

Managing Your Credit Checks

There are practical steps you can take to manage the impact of credit checks on your credit score:

Space Out Your Credit Applications

Multiple hard inquiries in a short time frame can negatively affect your credit score. Try to space out your credit applications to minimize this impact.

Utilize Pre-Qualification Options

Where possible, take advantage of pre-qualification offers that use only soft inquiries. This way, you can gauge the likelihood of approval without harming your credit score.

Regularly Review Your Credit Report

Reviewing your own credit report frequently can help you stay on top of your credit health. Since this is a soft inquiry, it doesn’t impact your credit score and can alert you to any inconsistencies or fraudulent activities.

Diversify Your Credit Portfolio

Having different types of credit (e.g., mortgage, credit card, personal loan) can be beneficial for your credit score. It indicates to lenders that you can manage various types of debt responsibly.

FAQs

What is a Hard Credit Check?

A hard credit check occurs when a lender or financial institution reviews your credit report as part of an application process. This type of inquiry can slightly lower your credit score.

What is a Soft Credit Check?

A soft credit check is an inquiry conducted for informational purposes and does not impact your credit score. Examples include personal credit checks and pre-qualification offers.

How Do Hard Credit Checks Affect My Score?

Hard credit checks can lower your credit score by 5-10 points and are visible to potential lenders. Multiple hard inquiries in a short period can have a more significant impact.

Can I See Who Performed A Hard Credit Check?

Yes, you can see hard inquiries on your credit report. They remain visible for up to two years.

Do Soft Credit Checks Appear on My Credit Report?

While soft inquiries appear on your credit report, they are only visible to you and do not affect your credit score.

Can Employers Perform Credit Checks?

Some employers conduct soft credit checks as part of their hiring process, especially for roles that require financial responsibility.

How Often Should I Check My Own Credit Report?

It’s advisable to review your own credit report at least once a year. Regular checks help you stay informed about your credit health and catch any discrepancies early.

How Long Do Hard Inquiries Stay on My Credit Report?

Hard inquiries stay on your credit report for up to two years, though their impact on your credit score diminishes after the first year.

Can I Avoid Hard Credit Checks?

While you cannot avoid hard credit checks entirely if you’re applying for credit, you can limit their impact by spacing out your applications and using pre-qualification options that involve soft inquiries.

Do All Lenders Perform Hard Credit Checks?

Most traditional lenders perform hard credit checks. However, some fintech companies and peer-to-peer lenders might offer pre-qualification processes that only use soft inquiries initially.

Understanding the differences between hard and soft credit checks can provide you with crucial insights to manage your credit health effectively. By making informed decisions, you can mitigate the negative impacts on your credit score and stay financially responsible.