Despite what you may think, not all credit inquiries have a negative impact on your credit score. Do you know what is a soft credit check compared to a hard credit inquiry? Understanding the differences can help you protect your credit score and improve your financial well-being.
A soft inquiry to a credit reporting agency (e.g., Transunion, Equifax, Experian) means that the inquiry won’t affect your credit score because the credit bureau won’t disclose the inquiry to anyone other than you. On the other hand, a hard inquiry will show up on your credit report for others to see, and can negatively impact your credit score.
Let’s take a look at some examples of when each type of credit check is made.
Another difference between a soft and a hard credit check is that a hard inquiry on your credit may temporarily lower your score, although it will often go down by only a few points. Unlike a soft credit check, future inquiring parties will be able to see when a hard credit check is performed, as this information is part of your report. Credit bureaus will generally retain this information on your report for up to two years.
However, not all hard inquiries can hurt your credit. For example, major credit scoring company FICO says it treats all inquiries for a mortgage, an auto loan or a student loan within a 45-day period as a single credit inquiry, because this type of “bunching” of credit inquiries usually indicates that the consumer is shopping for credit to finance a major expense and, therefore, it does not reflect poorly on your credit.
While there are times when a hard credit check is necessary and unavoidable—such as for financing a car, or putting the water bill in your name—there are plenty of instances when you can (and should) avoid it. As Investopedia points out, “If you’re concerned about the impact of hard inquiries on your credit score, don’t apply for any loans or credit you don’t need. And if you want to open a new bank account or start a new cell phone contract, ask if it will result in a hard credit pull before you apply.”
The next time a sales clerk asks if you want to apply for an in-store credit card to get an extra 30 percent off your purchase—think twice. It may seem like no big deal at the time, but filling out that application may result in a lower credit score and make it harder to get a loan in the future.
> More: Read about more ways to improve your credit score.
When you check your own credit, either directly with a credit bureau or through a credit monitoring service, it should be treated as soft inquiry. A soft inquiry into your credit report won’t hurt your score and can help you identify suspicious activity before it gets out of hand.
Credit monitoring sites are useful, but obtaining your credit report directly from the source will give you all the information the credit bureau has in your file. Thanks to the Fair Credit Reporting Act, consumers are entitled to receive one free credit report from each of the three major credit reporting bureaus on an annual basis.
Regardless of whether you’re actively seeking a new loan or line of credit, you should regularly review your credit reports and pay careful attention to all new credit inquiries. An inquiry that you didn’t initiate—other than those related to prescreened solicitations—can be a sign of fraudulent activity or possible identity theft. Remember, keeping your credit on track is all about vigilance and smart spending. Checking in on your score (without it affecting your record) can help pave the way to a brighter financial future.
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