Does a Soft Inquiry Hurt Your Credit Score?
Understand the nuanced effects of credit inquiries on your score. Gain insight into how different checks truly impact your financial health and how to monitor it.
Understanding how credit inquiries affect your financial standing is crucial for managing your credit score. While many worry about credit checks, certain types generally do not harm your score. Distinguishing between different credit inquiries is key.
Understanding Credit Inquiries
A credit inquiry happens when a party accesses your credit report from Equifax, Experian, or TransUnion. These are categorized as soft or hard inquiries. The inquiry’s purpose determines its classification and potential effect on your credit score, as only one type typically influences it.
Soft inquiries, or soft pulls, occur when your credit report is accessed for informational purposes or without an explicit application for new credit. Hard inquiries happen when a lender reviews your credit history for a formal credit application. Each type serves a different function, impacting how they are recorded.
Why Soft Inquiries Do Not Affect Your Score
Soft inquiries do not impact your credit score as they don’t indicate new credit-seeking behavior. These checks are often performed by individuals checking their own credit or by companies for pre-screenings. For example, checking your credit score through a monitoring service or directly from a credit bureau is a soft inquiry, allowing you to monitor your financial information without penalty.
Financial institutions may also perform soft inquiries to pre-qualify you for credit offers, assessing creditworthiness for marketing without a formal application. Soft inquiries can also occur during employment background checks or when an insurance company assesses risk. These inquiries are typically visible only to you on your credit report, not to other lenders.
When Inquiries Can Affect Your Score
Hard inquiries, unlike soft inquiries, can result in a minor, temporary reduction in your credit score. These occur when you apply for new credit, such as a mortgage, auto loan, personal loan, or credit card. Lenders perform hard inquiries to evaluate your creditworthiness and determine the risk of extending new credit.
Each hard inquiry can cause a small dip, often by fewer than five points. The impact is more significant with a limited credit history or numerous recent inquiries. Hard inquiries remain on your credit report for up to two years, but their influence on your score typically diminishes after a few months. For loans like mortgages or auto loans, multiple inquiries within 14 to 45 days are often treated as a single inquiry to accommodate rate shopping, minimizing cumulative impact.
Monitoring Your Credit Safely
Regularly monitoring your credit information is a proactive step toward maintaining financial health. Checking your own credit report or score is a soft inquiry, which will not negatively influence your credit score. This allows you to review your financial data for accuracy and identify potential errors or fraudulent activity.
You can obtain a free copy of your credit report from Equifax, Experian, and TransUnion once every 12 months through AnnualCreditReport.com. Many financial institutions and credit card companies also offer free access to your credit score, often updated monthly. Utilizing these resources helps you stay informed about your credit profile without adverse effects.