How Does a Soft Inquiry Affect Credit Score?
Uncover the true impact of soft credit inquiries on your credit score. Learn how various checks influence your financial standing.
Credit inquiries represent records of someone accessing your credit report. These inquiries are broadly categorized into two main types: soft inquiries and hard inquiries. This article will focus on understanding soft inquiries and their specific impact on your credit score.
What is a Soft Inquiry
A soft inquiry occurs when your credit report is accessed for informational purposes rather than as part of a formal application for new credit. These types of inquiries typically happen without your direct permission, though they are often a result of actions you take. For instance, checking your own credit score through a credit monitoring service or a personal finance app generates a soft inquiry.
Companies may also perform soft inquiries when they pre-approve you for credit card offers or loans, as they are assessing your general creditworthiness without you having applied yet. Similarly, employers may conduct a soft inquiry as part of a background check, or insurance companies might use them when providing a quote.
How Soft Inquiries Affect Your Credit Score
Soft inquiries do not affect your credit score. This is because they are not associated with new credit applications or an increased risk of debt. Credit scoring models are designed to differentiate between informational checks and requests for new credit.
Lenders cannot see soft inquiries when they pull your credit report to make a lending decision. Checking your own credit regularly is considered a good financial habit and will never negatively impact your score.
These inquiries serve as a way for individuals to monitor their financial health or for companies to pre-screen potential customers. You can check your own credit score as often as you wish without concern for a negative effect.
How Hard Inquiries Affect Your Credit Score
A hard inquiry, in contrast to a soft inquiry, occurs when you formally apply for new credit. This type of inquiry is initiated when a lender reviews your full credit report to decide whether to approve your application for a loan, credit card, or mortgage. Each time you submit an application, the lender will typically perform a hard inquiry.
Hard inquiries can cause a small, temporary dip in your credit score. This minor reduction, often around 5 to 10 points, happens because applying for new credit signals that you might be taking on more debt, which credit scoring models interpret as a slightly increased risk. The impact of a single hard inquiry is usually minimal and short-lived.
Multiple hard inquiries in a short period, especially for different types of credit, can accumulate and potentially have a more noticeable effect on your score. These inquiries remain on your credit report for up to two years, though their impact on your credit score typically diminishes after a few months.