Hard vs Soft Credit Inquiries. If you’re unsure about letting your bank check your credit report, it’s most likely because you’re afraid it might harm your credit score.
And you’re probably right to feel this way.
Oftentimes, lenders will assume you know what you’re getting yourself into. They won’t specify whether they’re performing a hard inquiry or a soft inquiry, so it’s best to ask them beforehand.
Consider educating yourself on the decision before allowing this lending agency to look at your credit score.
Business entities like banks, lenders, companies, etc. can check your credit report to determine if you are a good fit for their credit-lending business. But, it can result in your credit score decreasing if they perform a hard inquiry.
If a soft inquiry is performed instead, it won’t affect your credit score. Lending agencies will rarely perform non-committal inquiries (soft inquiries), but credit monitoring agencies like TransUnion, Experian, and Equifax do.
Read on to learn more about the difference between soft vs hard credit inquiries. You’ll learn how you can empower yourself to make better decisions before and after the credit-checking process.
Soft Credit Checks Are Non-Commital Background Checks
Soft credit checks can be performed on your own, through a business owner, a bank, or a credit-check agency. As you look to varying sources hoping to form a solid foundation for what your credit score is before making any commitments with potential investors, you’ll find that almost all inquiries will differ from one another.
This is because each business uses some variation of the three major credit bureaus: TransUnion, Experian, and Equifax. Some lenders will use other lesser-known bureaus when checking your credit score. They may look for unusual variables related to your credit history that the credit bureaus might not consider, but this is uncommon.
Some acclaimed credit monitoring services include:
- Credit Karma: Free service – TransUnion and Equifax
- Identity Force: Paid service – All three credit bureaus available
- TransUnion Credit Monitoring: Paid – All three credit bureaus available
Each of these companies can perform a soft credit check to help give you a general idea of your credit history. Using these services will have zero impact on your credit score.
The credit score you see when using these services may differ from the score your receive from your lender. The goal of using sites like these is to gauge your credit health and credit history. They help you to know where you stand before you take out credit from an accredited lender.
When to Receive a Hard Inquiry
When applying for a credit card, or taking out any kind of personal loan or mortgage from your lender, they will always perform a hard inquiry. This leaves a mark on your credit history that will lower your credit score. They stay on your credit report for two years, but they only affect your score for up to a year.
This is why it’s vital to know whether you have good enough credit for your lender to accept your application. Or, to choose a lender who isn’t overly critical of credit ratings.
You have to make every hard inquiry count and avoid multiple applications within a short time frame. Have too many hard inquiries at once and you may find yourself burdened by low credit.
Important to know: Existing lenders can perform hard inquiries. If you have an overdraft, but you apply to increase your credit limit, your bank will perform another hard inquiry because of the nature of your request. Lenders see overdrafts as a risk. If they lend you more credit, this may lead to more overdrafts.
Why Do Hard Inquiries Affect My Credit Score?
Hard inquiries regulate risk.
For example, if a borrower has had 10 hard inquiries in the past 3 months, lenders would see the borrower as taking on too much debt. Or, if too many lenders deny them, other lenders might see this borrower as uneducated on credit-related matters.
This means lenders may even deny wealthy borrowers their lending services if they have a history of being irresponsible with their credit. Lenders aren’t interested in how much money their potential borrower has. It’s the good use of credit that gives an accurate impression of the health of your credit score.
Important to know: If a borrower has had many hard inquiries in a week or a few days, this is an indicator of possible fraudulent activity. Lenders or fraud agencies may reach out to the borrower to inform them they may have been a victim of fraud.
Minimizing Unnecessary Hard Inquiries
Knowing when you are most likely to receive a hard inquiry based on the nature of the background check can save you and your lender time and money.
Here is a list of common situations where a hard inquiry will be performed:
- Applying for a mortgage
- Getting a credit card
- Applying for student loans and personal loans
- Some apartment rental applications (not all)
- Applying for an auto loan
Here is a list of soft inquiries for comparison:
- Checking your credit on credit monitoring services
- All pre-qualified offers
- Employers performing background checks
The best way to determine if your lender, service provider, etc. is performing a hard inquiry is to ask beforehand. There are many other kinds of credit checks unlisted above. Moreover, when undergoing any business exchange, make sure you are aware of the nature of the agreement before making any commitments.
The Bottom Line
Keeping your credit score healthy means staying informed about your credit history and knowing how the Canadian credit system works.
Knowing the difference between hard inquiries and soft inquiries is just the beginning. Whether you’re a first-home buyer or a college graduate looking into ways to grow your credit score, the best decision you’ll ever make is to consult with a professional.
Here at Mortgage Brokers Network, we’re happy to offer our over 30 years of experience in the industry. Even better, we only pull credit once. We are able to present applications to over 50 lenders using the same credit report.
By limiting the number of credit inquiries, you preserve your credit rating and give yourself the opportunity to get the best mortgage you qualify for.
And, if you happen to have credit issues we can help there too. Our network of alternative lenders places emphasis on the amount of equity you have in your home, not your credit or income.
If you own a home or plan on buying one, it’s important to have your credit rating in order or know who to call if it isn’t perfect.
Apply online or call us toll free at 1-877-383-1577 for a free consultation and see what 30 years of experience can do for you.