Are you planning to apply for that dream car?
Maybe you’re trying to find a new apartment?
If you’re applying for a loan or a credit card, so you want to get the car or the house of your dreams, before you get approved potential lenders will most likely conduct a hard inquiry on your credit reports.
“Here’s why this is so important and what’s a hard inquiry?”
Knowing what a hard inquiry or a hard pull is can have a massive effect on buying your new house or getting that startup money for your growing business.
With over two decades of experience as a banking expert and financial advisor, in this blog, you’ll not only learn what and how hard inquiries work.
Below, I’ll also show you its counterpart, soft inquiries or soft pulls.
Scroll on, and let’s start!
What Are Inquiries on Your Credit Report?
If you’re looking for credit from lenders or credit card issuers, they most likely would want to know whether you’re a responsible borrower.
You should check your credit report often and before applying for credit to understand better what potential lenders and credit card issuers see on it.
Your credit report contains information such as your payment history, credit utilization ratio, financial behavior, balances, loans, and more that can help lenders and other credit issuers decide whether to work with you.
For lenders to access these data, they must request your credit file from the credit bureaus, which results in a hard inquiry that will appear on your credit report.
Consumer credit reporting agencies such as Equifax, TransUnion, and Experian can only share your credit file data with those who have a permitted purpose of viewing those details.
A soft inquiry, on the other hand, is unrelated to other loans or credit card applications.
A soft credit inquiry or soft credit check happens when you check your own credit, and it doesn’t affect your credit scores.
Read on, and let’s learn more about hard and soft inquiries.
What is a hard inquiry?
A hard inquiry is a request recorded in your credit report when a lender or company requests your credit file from the credit bureaus as part of the loan application process.
Hard inquiries indicate when you have applied for credit, and it can stay on your credit report for two years.
Fortunately, it generally affects your credit scores for only one year.
With different credit histories, hard inquiries can mean different things to lenders.
For instance, if you recently have hard inquiries on your credit report, lenders might think that you’re desperate for credit.
This can be crucial when potential lenders are assessing your creditworthiness.
How Hard Inquiries Work
Once you’ve given lenders or companies permission to check your credit, they can pull your credit reports from the three major credit bureaus: Equifax, TransUnion, and Experian.
Your credit reports include data such as your debts, payment history, credit utilization, age of credit accounts, types of credit being used, and inquiries for new credit.
Lenders make hard inquiries to see your creditworthiness in your credit report.
For instance, if your credit report shows many late or missed payments, it’s a major red flag to lenders, while having a lengthy and strong credit history makes you more attractive to them.
How does a hard inquiry affect your credit score?
Your credit score is a three-digit number that serves as a reflection of your creditworthiness.
And hard inquiries are one of the factors that determine your credit scores.
There are different factors that impact credit scores, and it can also vary depending on the credit scoring model used. The most used scoring model, FICO, calculates credit scores based on these factors:
- Payment History (35%)
- Amounts Owed (30%)
- Length of Credit History (15%)
- New Credit (Credit Inquiries) (10%)
- Credit Mix (10%)
Hard inquiries have a much smaller impact on credit scores than payment history or credit utilization but that doesn’t mean we should just ignore it and apply for credit all the time.
Multiple unnecessary credit applications can still hurt your credit scores since each hard inquiry can cost you score points, usually less than five.
How long does a hard inquiry stay on my credit report?
Hard inquiries can impact FICO score calculations for about 12 months and can remain on your credit report for two years.
How many points your score will drop and how long it will be affected by these inquiries will depend on your overall financial habits.
But don’t worry. You can easily recover these lost points quickly by consistently paying your debts on time and lowering your credit utilization ratio below 30%.
But if you keep opening unnecessary accounts and maxing out credit cards, you’ll have difficulty regaining those points.
How to dispute hard credit inquiries
If you want to dispute hard credit inquiries, it’s best advised that you monitor your credit reports regularly.
Inaccuracies on your credit report can negatively impact your credit scores.
Check for errors, like inquiries that happened without your knowledge.
You can try disputing this error with the credit bureaus or asking the Consumer Financial Protection Bureau (CFPB) for further help.
Unfamiliar or unusual activities on your credit report can also be signs of identity theft.
Remember that you can only dispute hard inquiries that happened without your permission.
What is a Soft Inquiry?
Soft inquiries, also called soft credit checks or soft pulls, usually occur when a person checks his own credit or a company checks their credit as part of the job application process or background check.
While they’ll need your consent to view your credit report, it’s not considered a hard inquiry since it’s not for the purpose of deciding whether to lend you money or credit.
Also, unlike hard inquiries, soft pulls don’t affect your credit scores, and they can either be seen or not in your credit reports, depending on the credit bureau.
Soft vs. Hard Inquiry
In terms of how it works and its impact on credit scores, a soft inquiry is the opposite of a hard inquiry.
Soft inquiries occur when you or someone else check your credit without using a formal pull of your credit reports.
For instance, you can check your reports monthly using credit monitoring services like myFICO or Experian, which is considered a type of soft inquiry.
A few other examples of a soft inquiry are:
- Prescreened credit proposals.
- Landlord credit checks (for apartment owners)
- Employment credit checks (for job applications)
| Hard Inquiries | Soft Inquiries |
| Occurs when someone you’ve permitted pulls your credit for the purpose of getting credit. | Occurs when you or someone views your credit reports for informational purposes. |
| Can affect your credit scores | No impact on your Credit Scores |
| Lenders generally need your permission to make hard inquiries | Potential lenders and issuers don’t need your authorization to do a soft inquiry |
| Can stay on your credit for two years and will be visible to anyone who requests your credit reports | Soft pulls stay on your credit for two years but will only be visible to you |
Hard Inquiry In A Nutshell
Credit scores play a massive role in your financial health.
It can either make or break your dream car, house, and loans.
However, when applying for new credit, lenders or credit issuers usually do a background check to see whether you’ve recently applied for other credits.
This process is called a hard inquiry.
Lenders can only make hard inquiries with your permission, and they usually stay on your credit for about two years.
Viewing your inquiries can help lenders decide whether to extend you credit or work with you.
I advise that you avoid applying for multiple credit cards within a short period of time, as hard inquiries can also damage your credit scores.