Every time someone looks at your credit report, the bureau records an inquiry. Some of those inquiries can lower your credit score and some have no effect at all. Knowing the difference helps you shop for the best loan or credit card without worrying that comparing offers will cost you points, and it helps you spot activity on your report that you did not authorize.
What is a soft inquiry?
A soft inquiry, sometimes called a soft pull, happens when your credit is checked for reasons other than a new credit application you have made. Checking your own score, a lender pre-screening you for a mailed offer, an existing card issuer reviewing your account and many employer background checks are all soft inquiries. They may appear on the copy of the report you see, but lenders cannot see them and they never affect your score. That is why prequalification tools that use a soft pull are a safe first step.
What is a hard inquiry?
A hard inquiry happens when you apply for credit and give a lender permission to review your full report to make a lending decision. Applying for a credit card, auto loan, mortgage, personal loan or some apartment leases usually triggers a hard pull. Hard inquiries are visible to other lenders, stay on your report for two years and are counted in your score for the first twelve months.
How much does a hard inquiry cost?
For most people a single hard inquiry lowers a FICO score by fewer than five points, and the effect fades over a few months. Inquiries make up only about ten percent of a FICO score, far less than payment history or utilization. The impact can be larger if your credit history is short or you have very few accounts, because each new piece of information carries more weight in a thin file.
Why lenders care about inquiries
From a lender's point of view, several new applications in a short time can signal that a borrower is under financial stress or about to take on a lot of new debt. Research behind scoring models shows people with six or more recent inquiries are statistically more likely to miss payments. That is why opening several credit cards within a few weeks can hurt more than shopping around for one car loan.
How to shop for a loan the smart way
Start with prequalification offers that use a soft pull, so you can see estimated rates without any score impact. Once you narrow your choices, submit your full applications close together to take advantage of the rate-shopping window. Avoid applying for unrelated credit, such as a new store card, in the months before a big loan like a mortgage. And remember that credit card applications are not grouped together, so each one counts separately.
What to do about inquiries you don't recognize
Review the inquiries section of all three reports at least once a year. If you see a hard inquiry from a company you never applied with, contact the lender to ask about it and dispute it with the bureau if it was not authorized. An unfamiliar inquiry can be an early warning sign of identity theft, so consider placing a fraud alert or a free credit freeze if you suspect someone is using your information.
Hard inquiries are a small, temporary part of your score, and they should never stop you from comparing offers on a loan you need. A lower rate will usually save far more than the few points an inquiry costs. At Credit Cover Pro we start every quote with a soft check and only request a hard pull when you choose to apply.
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