Understanding Hard vs. Soft Credit Checks

A savvy consumer should always think twice before authorizing any company to pull their credit report. But in today’s world, credit checks (also commonly referred to as “inquiries” or “pulls”) are commonplace, and we don’t always consider the pros and cons of letting lenders look into our reports. When you’re in a situation where your credit will be pulled, perhaps the most important question to ask is “Will that be a hard inquiry or a soft inquiry?” It turns out that the difference can impact your credit score, especially if you are shopping around for something like, say, a mortgage. The good news is that many credit pulls are soft inquiries, like the one we do at Clearpoint when we review credit reports and provide free FICO scores to clients. And, these don’t hurt your credit in any way. That said, let’s take a deeper look at the specific differences of each inquiry, including the situations where each is typically used.

The Consequences of Each Inquiry

Before we go any further, it’s important that you understand exactly why this distinction matters at all. Really it boils down to this: Hard inquiries remain on your credit report for two years and are a sign that you are actively seeking new credit; soft inquiries aren’t visible on your credit report (except to you), don’t impact your credit score and stem from a variety of causes.

As we will discuss more in a moment, hard inquiries are sometimes unavoidable, and certain products and services will always require them. You can, however, limit their negative effect on your credit by avoiding unnecessary credit accounts and by being strategic when you shop for interest rates.

Circumstances for Hard Inquiries

Hard Credit Inquiry
Here’s a look at some common examples of when a hard inquiry is used. Keep in mind that some of these are done on a company-by-company or a case-by-case basis. In some instances, companies do a soft pull first and then a hard inquiry if they have further concerns about an applicant.

  • Applying for a mortgage, credit card or loan (student loans, car payments, etc.)
  • Opening an insurance policy
  • Opening a checking account
  • Joining a credit union
  • Apply for utilities, such as opening a new cable or phone line or a gas or electric account
  • Renting a car (particularly when you pay with a debit card)

A few other notes:
-Hard credit inquiries only affect your credit score for 12 months. However, they remain on your report for 24 months.

-Consumers are protected from rate-shopping inquiries. In cases of rate shopping, the credit report should only show one inquiry over a 45 day period, as others in that timeframe will be excluded.

-An additional resource that might be helpful if you’d like to further evaluate the types of services and companies that pull hard inquires can be found in this Consumerist article. It’s important to note that it’s from 2008, but again the information could be helpful, depending on your needs.

Circumstances for Soft Inquiries

Soft Credit Inquiry
Soft Inquiries are obviously of much less concern, but here are some common situations in which you might experience a soft pull of your credit. In some cases, these happen without you even knowing about it:

  • When you are pre-approved for a credit card (you typically will receive an offer in the mail)
  • Starting a new cell phone contract
  • Starting a new job (employer credit check)
  • Using a bike share program
  • Applying for an apartment
  • Working with a financial education organization (such as Clearpoint) who may pull your credit to provide personalized advice for you

Credit Inquiries Moving Forward

At the end of the day, credit report pulls are common practice across a variety of industries and services. What’s important is to understand that they do have an impact and you shouldn’t pursue credit that’s not necessary and part of a bigger financial strategy. Next time you’re asked to authorize a credit pull, be sure to ask what type it is, and move forward only if necessary.

If you’d like to take a deeper look into your credit situation, and receive your free FICO score, we can help. Get started today with our online form, and a counselor will be in touch soon.

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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