What Is the Difference Between a Soft and Hard Credit Check?
Navigate financial applications confidently. Learn which credit inquiries impact your score and how to protect your credit.
Credit checks are a key part of the financial system, used by organizations to evaluate an individual’s financial reliability. They provide a snapshot of a person’s credit history, detailing past borrowing and repayment behaviors. Understanding these checks is important for consumers, as they influence access to financial products and services. These evaluations help lenders assess the risk of extending credit.
Understanding Soft Credit Checks
A soft credit check, also known as a soft inquiry, occurs when a person or company reviews your credit report for informational purposes. These checks do not require your explicit permission and are generally not tied to an application for new credit. Common scenarios include checking your own credit score, receiving pre-qualified offers for credit cards or loans, and employer background checks.
Soft credit checks also occur when insurance companies assess your credit to determine policy eligibility or pricing. These inquiries are recorded on your credit report but are typically only visible to you. A soft credit check does not affect your credit score.
Understanding Hard Credit Checks
A hard credit check, also known as a hard inquiry, takes place when a lender accesses your credit report as part of a formal application for new credit. This type of inquiry usually requires your explicit authorization, often provided when you sign a loan or credit card application. Hard inquiries are common when applying for significant financial products such as a mortgage, an auto loan, a personal loan, or a new credit card. They also occur for certain lines of credit or private student loans.
Hard inquiries can temporarily lower an individual’s credit score by a few points, although the impact is usually minor and short-lived. A single hard inquiry typically reduces a FICO Score by fewer than five points, with the effect lasting up to a year. These inquiries remain on your credit report for approximately two years.
Key Distinctions Between Soft and Hard Checks
The primary differences between soft and hard credit checks lie in their purpose, their effect on your credit score, and their visibility to others.
Soft inquiries are generally for informational or pre-qualification purposes, allowing entities to gauge creditworthiness without a formal commitment. In contrast, hard inquiries are conducted when a consumer formally applies for a new line of credit, signaling an intent to borrow.
Soft checks do not affect an individual’s credit score, providing a risk-free way to review credit information or explore potential offers. Hard checks, however, can cause a small, temporary dip in your credit score, typically a few points, which generally recovers within a few months. While hard inquiries remain on a credit report for up to two years, their influence on the score is usually limited to the first 12 months.
The visibility of these inquiries also differs significantly. Soft inquiries are typically only visible to the individual whose credit is being checked. Hard inquiries are visible to other lenders and appear on credit reports, potentially influencing future lending decisions.
Managing Your Credit Checks
Understanding the nature of credit checks empowers individuals to manage their financial profiles effectively. Consumers can obtain a free copy of their credit report from each of the three major nationwide credit reporting agencies—Equifax, Experian, and TransUnion—once every 12 months.
This can be done by visiting AnnualCreditReport.com, which is the only federally authorized website for free credit reports. It is also possible to access these reports weekly for free through AnnualCreditReport.com, a program that has been permanently extended.
When considering new credit, applying for a loan or credit card will almost always result in a hard inquiry. Apply for credit only when truly needed and limit multiple applications within a short period, especially for different types of credit. Regularly monitoring your credit reports for accuracy is important, as it helps identify any unauthorized inquiries or errors that could impact your financial standing.