Soft Credit Check vs. Hard Credit Check: What’s the Difference?
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.
What’s the difference between a soft credit check and a hard credit check?
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.
Examples of soft credit inquiries
- Checking your rate at LendingClub
You can check your rate with us as many times as you’d like, with no impact to your credit score. No one except you will see the soft inquiries on your credit report. (Only when your loan is approved and money deposited into your account will we do a hard credit inquiry to indicate that you have officially accessed credit through LendingClub.)
- Pre-screened offers of credit from credit card companies
Under the federal Fair Credit Reporting Act (FCRA), credit inquiries in prescreened credit solicitations using your information from a credit bureau may not be disclosed to anyone but the consumer involved and therefore won’t affect your credit.
- Checking your credit score with a credit monitoring site.
Credit monitoring services such as Privacy Guard and CreditKarma are useful for keeping an eye on your finances. Just review the site first to make sure you understand how their credit check policy works—doing a soft inquiry is not a legal requirement.
- Checking your rate with mortgage lenders to see what you qualify for before formally applying for a loan.
A soft inquiry isn’t legally required for a mortgage “prequalification,” so make sure you ask if the credit check will be treated as a hard inquiry.
- Credit report checks performed by prospective or current employers
Examples of hard credit inquiries
- Completing a formal application for credit or a loan.
Common examples include applications for a home mortgage loan, an auto loan, or a new credit card. Lesser known reasons a hard credit inquiry may appear, include:
- New cell phone service
- Placing residential utilities, i.e., water, gas, electricity, garbage, in your name
- Applying for a student loan
- Submitting a rental application for a home or apartment
How do credit inquiries affect my credit score?
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.
Benefits of checking your own credit
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.