Credit scores are determined by several factors including your on-time payments, credit utilization, and the length of your credit history. They are also impacted by certain inquiries on your credit.. Credit scores are negatively affected by how many “hard pulls” or “hard inquiries” made. Soft inquiries have no impact on your credit.
First, let us take a look at the basics.
What is a hard pull or hard inquiry?
When you apply for a credit card, home or auto mortgage, the lender will typically check your credit before making a decision on loan approval and your interest rates. These are hard pulls and affect your credit score.
A single hard pull decreases your credit score by a few points and stays on your credit report for two years. But if you apply for too many credit cards or loans in a short period of time, these hard inquiries can have a big negative impact on your credit scores Too many loan applications in a short period tell lenders that you are looking to add debt and that you may be a potential high-risk customer.
You will typically know when a hard pull is made. When you apply for an auto or home loan, lenders will give you a form to sign giving them permission to run a hard inquiry.
One way to manage this is to spread out our loan applications – especially loans of different types (that is spread out your applications for home loans, auto loans and credit cards as much as you can)
What is a soft pull or soft inquiry?
A soft pull happens when an employer or a lender checks your credit as part of a background check. Credit card companies run soft credit checks before sending you offers in the mail. Soft inquiries can sometimes happen without your permission as in the case of credit card offers.
Soft pulls or inquiries don’t affect your credit score. Some credit bureaus don’t even record it because it is not tied to any application for credit.
Managing credit pull requests
If you concerned about too many hard pulls on your credit. ask the lender, cable company, or your utility company if the credit check is a hard or soft pull.
Try to keep the number of hard inquiries down. When you apply for a home or car loan, you are likely to be “rate shopping” – requesting rates from different lenders. Though this will likely trigger multiple hard pulls, credit bureaus understand that consumers shop to get the best rate. So they group these hard requests into one hard pull or request in your credit report. Note that these inquiries must be in the same category (eg. home loans). If you apply for a home loan, a car loan, and credit cards, all at the same time, they will be treated as different inquiries and will affect your credit score negatively.
Bottom Line
When you apply for a line of credit, the credit inquiry is likely to be a hard pull. Hard pulls stay on your credit report for two years. Though a single hard inquiry will not affect your credit score, too many hard inquiries in a short period of time will lower your credit score.
A soft pull on the other hand is a background credit check run by an employer. It doesn’t affect your credit score. When dealing with lenders or services, always ask if the credit inquiry will be hard or soft. Sometimes you can get by with just a soft inquiry.
