Discover the Difference Between a Hard and Soft Credit Inquiry
Do you know the difference between a hard and soft credit inquiry? Knowing what these terms mean can be the difference between gaining or losing points on your credit score. Any time your credit is accessed by a third party, it will reflect as either a hard inquiry or a soft inquiry. What exactly does this mean and how can your credit score be effected? Let’s take a look at a few scenarios.
Are you trying to get a credit card with a really good rate? You may have been shopping around for a while so that you can get the best possible deal. Chances are, you may have found a few different cards that you like, but there were a couple of things that you did not like about each one. You will find one that you like but you have to pay an annual fee or another you will find one with no annual fee but there will be really high late charges or other miscellaneous fees.
Looking through all of the terms for each one of them is one thing, but applying for all of them is another. You should not apply for all of these cards! Were you aware that making a number of inquiries could actually hurt your credit score? Well, it can and could actually end up doing quite a bit more damage than you would think.
The truth of the matter is, every single time that you apply for a credit card or inquire about any type of a loan or store credit, the information will show up on your credit report. This is called a “hard inquiry”. Many times, people will apply for different kinds of credit while they are completely unaware that the inquiries are going against their credit score. It is actually too bad that this information is not given to these individuals up front so that better choices may be made.
Essentially, a hard inquiry will show up on your report any time you apply for a credit card or loan. An occasional hard inquiry will not have a noticeable effect on your score, but multiple inquiries over a short period of time will as they are a red flag to lenders that you may be in financial trouble. This will not only decrease the odds of approval, but you run the risk of having the terms of existing accounts changed since your score will be lower than it used to be.
A common misunderstanding is that a requesting a copy of your credit report can actually hurt you. This type of an inquiry is called a “soft inquiry” and should never count against your credit score. If this kind of error ever shows up on your credit report and it is showing against you, it is very important that you go through the steps to resolve the error immediately.
Another common type of soft inquiry is a pre-approval for a loan or credit account. I am sure you have seen offers come through your mail about you being pre-approved for a particular credit card. These companies have done a preliminary check of your credit and see enough that they think you stand a very good chance of being approved for the offer they are presenting. Per-approval does not guarantee approval, however, and if you choose to apply for the offer, it will be a hard inquiry against your account.
A third type of soft inquiry comes from utility and insurance companies. These companies will run an overview of your credit to ensure they think you are in a financial place to be able to pay accounts. For example, a phone company sees instances of past refusal to pay for services, they may decide not to allow you to open an account. Another example is auto insurance. Your rates are based, in part, on your credit. Any time you shop for a new policy, do not be surprised to see soft inquiries from the company show up on your report.
Soft inquiries are essentially credit overviews that do not provide in depth information. Because of this, they do not count against your credit score.
The credit reporting agencies have made one exception. Knowing that today there are soooo many mortgage companies you can go to for a home loan, they have made it that multiple mortgage inquiries made within 14 days are treated as one inquiry. You should try to do all your “rate shopping” within a 30 day period. These inquires are generally not counted against your score.
Many creditors will look to see the exact amounts of inquiries that you do have on your credit report. Depending on the guidelines of each creditor, four or more inquiries within a timeframe of six to nine months can be considered an excessive amount and they could end up denying your credit request. This request and denial will then show up on your credit report along with any others that you may have. All of these inquiries will hurt your credit score. So choose what you apply for carefully and really think about whether or not this new credit card or loan is worth dropping your credit score by a few points