Through soft and hard inquiries, lenders or companies look at your credit report. Both inquiries may have similar meaning but they serve different purposes and have different effects on your credit score.

A soft inquiry happens when you check your credit score yourself or when a company checks your credit for background purposes. These purposes could include when you’re getting a new phone plan or a landlord is checking your credit to know if you’re a good candidate for renting.

Soft inquiries can also happen when financial institutions you already do business with check your credit to pre-approve you for loan offers. Now, the good thing with a soft inquiry is that they do not affect your credit score at all. They’re basically just a quick glance at your credit status.

They are not linked to an application for new credit and they are not seen as a signal that you are seeking to take on new debt.

On the other hand, a hard inquiry is a more in-depth check. It happens when you apply for a loan, credit card, or any form of new credit. Hard inquiries require your consent because they can affect your credit score. Lenders use hard inquiries to have a full grasp of your financial status and how responsible you are with credit.

Lenders like to be sure that they will get their money back, this is why they carry out hard inquiries.

The Effect of Hard Inquiry on Your Credit Score

A hard inquiry can also be called a hard pull. Like we earlier discussed, it only happens when a financial institution check your credit report as part of the decision-making process for approving a loan or for credit application. 

Unlike soft inquiries, hard inquiries can have an effect on your credit score.

When you apply for credit or loans, the lender will conduct a hard inquiry to be sure you’re credit-worthy. Such loans or credit could include a new credit card, car loan, mortgage, or other kinds of loan. Credit bureaus see this inquiry as you wanting to take out a debt, which indirectly means you’re adding to your financial obligations. 

Typically, a hard inquiry could lower your credit score. When there is too many hard inquiry within a short time, it will have a significant impact on your credit score. That is, you may see that your credit score is decreasing. Now, this will also signal to lenders that you are financially desperate or are at risk of overextending yourself financially.

However, you should also know that all hard inquiries within a 45-day period for certain types of loans, like auto or mortgage, are usually grouped together and treated as a single inquiry in scoring models. This is to allow you to shop around for the best rates without worrying about each inquiry affecting your credit score.

You should limit your credit applications to when it’s absolutely necessary.

How Often is Too Often?

Ideally, you want to limit hard inquiries as much as possible. A good rule of thumb to follow is to have no more than one or two hard inquiries on your credit report within six months. This could mean you’re cautious about taking on new debts and are likely managing your finances well. If there are too many inquiries on your credit report, it will send the wrong message to your creditors and credit bureaus. It somehow means you’re desperately seeking credit. This will make lenders think twice before lending you money, they will probably reject your application sometimes, and your credit score may still reduce because of those inquires.

If you’re shopping for a major loan, like a mortgage or a car loan, try to do all your shopping within a 14-45 day window. Most credit scoring models will count all inquiries during this time as just one inquiry when calculating your score.

Build an Emergency Fund 

You have probably heard about the importance of an emergency fund. Emergency fund may seem like an idle money lying somewhere when you have so much responsibilities to handle. However, that’s not the case, an emergency fund helps you in times of need. It’s serving a purpose, so it is not an idle money. When the time comes for an emergency to be fixed, your emergency fund will be waiting to help. But if you don’t have any buffer, this may make you want to get a new credit, which can lead to hard inquiry.

Try to save, no matter how little.

Bottom Line 

Soft inquiry doesn’t have effects on your credit, but hard inquiry does. Remember to request for new credit seldomly so you can preserve your credit.

If you’re having serious financial issues, or debts that are weighing you down. You need to speak with a debt expert at EmpireOne Credit. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation. Being debt-free feels good!