Posted by James Financial Services Inc

What is the difference Between a Hard and Soft Credit Inquiry?

What is the difference Between a Hard and Soft Credit Inquiry?

While a credit score does not give the real picture of our credit history, it offers creditors, landlords and lenders an idea of our financial management skills. This article will compare hard and soft credit checks alongside the reasons many entities have a credit check.


Comparing Hard and Soft Credit Check 

Ensure you know the kind of credit check (Hard or Soft inquiry) anyone or business is conducting before giving your consent. This is because while a hard credit check dents your credit score, a soft check does not. 

Whatever you are doing: requesting a new credit card, meeting with an employer, or applying for a house, it is your call to decide if your credit should be checked. Understanding the difference between the two will help you determine what you should go for.

 

Understanding Hard Credit Check 

A hard credit check involves a deep dive into your credit history by the creditor. Most times, this happens on a request for a loan or credit card.

Every time there is a hard credit check, your credit score takes some hit. However, such impact might be negligible. One of the three major credit bureaus, Experian, explained that a FICO® Score would typically drop by five or less for every hard pull, which will remain on your credit report for two years.

Here are situations when a hard credit pull is conducted, application for:

  • A business loan

  • A personal loan

  • A mortgage loan

  • A credit card 


Avoiding Series of Hard Credit Pull 

Every time there is a hard credit pull, your credit report gets a notation. A creditor might be uncomfortable with a series of credit inquiries in your report. 

The good news is that one can avoid multiple credit checks by making numerous loan applications (of similar types) within a specified period. All credit reporting firms know that you will likely shop around to get the best offer, so they classify multiple credit inquiries for similar loan types as a single inquiry, as long as It happens within a specified time frame. 

This period varies due to the credit scoring model, but the range is 14 to 45 days. With this, make sure to have all the hard pulls within two weeks if you plan to shop around for loans.


Understanding Soft Credit Check 

This is just an analysis of your credit report. In other words, a firm or an individual might just be interested in exploring your creditworthiness. Since your application does not involve any particular decision, a soft pull has no impact on your credit score.

Many things account for a soft credit pull, and here are some parties that conduct a soft credit pull.

  • Landlords: They might conduct a soft or hard credit pull to access your ability to be prompt with your rent payment 

  • Potential Employer: An employer might be curious about your financial habit and general money management skill before giving you the job

  • Credit Card Firms: they are always looking for new customers. They might explore profiles to decide if you are a worthy option for their card. It is called pre-approval in the credit card world. It is not the same as what happens after filling out an application for a credit card. Pre-approval will trigger a soft pull, and on giving your interest, there will be a hard pull. 

  • Insurance Firm: Like credit card firms, they might need to assess how financially responsible you are before pre-approval for their products

  • You: it is possible to check your profile personally, which is classified as a soft pull.

For a soft check, the person or entity doing it does not need your permission. This is strictly based on the nature of the check. For instance, a credit card that has been pre-approved will not request your permission, but a future employer might need such.

The law mandates this as the federal Fair Credit Reporting Act specifies that only firms with a "valid need" can explore such a report.

With this, you need not worry about anyone laying a hand on your report and giving it unjust publicity. Only people or firms with a valid reason to check it can do so. 


FOR MORE INFORMATION ON HOW JAMES FINANCIAL SERVICES, INC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

James Financial Services Inc
Contact Member