10/6/2022
Your credit score is one of those aspects you need to know how to take care of if you hope to obtain financing, increase your wealth and improve your quality of life. In this sense, we help you to know how hard and soft credit inquiries influence your credit history.
What is a soft credit inquiry?
Also known as "soft pull", these types of inquiries do not affect your credit score and sometimes happen without your knowledge.
This usually happens when you receive an offer for a credit card in the mail, when you review your credit file, when a potential employer checks your history, or when a lender conducts a pre-approval.
In essence, a soft inquiry represents any request for information about your credit history from an entity, company or person other than a potential lender deciding whether to approve you.
According to the Fair Credit Reporting Act, these soft inquiries can only be viewed by you (with exceptions) and remain in place for up to 2 years after they are executed.
A soft credit inquiry does NOT affect your score
We have previously mentioned that you can check your credit score or credit report once a year and for free on the official website that brings together the 3 available bureaus (Equifax, Experian and TransUnion).
There are other free ways through which you can review your file and that do not take away points for doing so. This is the case of many financial institutions that, by contracting one of their products, usually a credit card, allow you to check your score whenever you want.
What is a hard credit inquiry?
A hard credit inquiry affects your score depending on how often it occurs. Generally, these types of inquiries may occur when you apply for a major personal loan, such as a mortgage, personal loan, auto loan or credit card.
The fundamental difference with respect to the one mentioned above is that you will be asked for consent to perform it. This also means that the review will become part of your credit report, making it possible for anyone to view it.
It is normal for a hard inquiry to take up to 5 points off your FICO score, but this depends on the frequency of the inquiries. For example, if you are comparing personal loans, all inquiries within a 30 to 45 day period are considered as one inquiry.
A hard credit inquiry DOES affect your score
In relation to the VantageScore, which is another FICO-like rating, it also has a grace period for you to review the best options available for financing.
In this particular case, the time is shorter and a hard inquiry for this parameter is less favorable and can take 10 to 20 points off your credit score.
Finally, the logical recommendation is to try to avoid as many hard inquiries as possible so as not to affect your credit history. Although having a few points taken off may not be relevant when you have an excellent reputation, if you have fair or bad credit, every small loss will be much more difficult to recover from banks or lenders.
Recommendations on soft and hard inquiries
It is natural to feel some concern if a company or bank could execute a hard inquiry to request a personal loan for a considerable amount.
Before making any request to a bank, we recommend you:
- Ask. It costs you nothing to talk to the person in charge to find out if they will need a soft or hard inquiry to start the process or secure the funds. This also applies when you see an inquiry on your credit report that you don't recognize.
- Learn about the requirements. Before launching an application for a loan or credit card, it's important to know as much information about it as you can. If it demands a level of credit above yours, better not try it, because you will surely be rejected, which will not look good on your report.
- Take advantage of loan shopping. We always advise you to shop around before deciding on a substantial financing. However, you have to conduct your research within a reasonable amount of time. While you will be subject to at least one hard inquiry, using this benefit reduces the negative impact on your credit history.
When it comes to taking care of your personal finances, you already know that hard credit inquiries are the only ones that can affect your history. Therefore, if you are trying to recover or improve your score, you should be alert to this type of situation.
It is essential to check your score frequently, be cautious about the frequency of inquiries and only make commitments that you can afford to pay.
While hard and soft credit inquiries don't show big differences, it's knowledge that will keep your finances healthy. For any other research on banking products, you can rely on Busconomico's comparator and choose the most favorable financing conditions.
Español: Diferencia entre hard y soft inquiry en consultas de crédito