Understanding Soft vs Hard Credit Inquiries

When you apply for credit, lenders need to check your credit history to assess your risk as a borrower. These checks are called credit inquiries, and they come in two distinct types: soft inquiries and hard inquiries. Understanding the difference between them is crucial for managing your credit health effectively, especially when shopping for loans or credit cards.

What Is a Soft Credit Inquiry?

A soft credit inquiry, also called a soft pull or soft check, is a credit check that does not affect your credit score. These inquiries typically happen when you check your own credit, when a lender pre-approves you for an offer, or when an employer runs a background check. Soft inquiries are often performed without your explicit permission because they are considered routine and harmless to your credit standing.

Examples of soft inquiries include checking your own credit score through a free monitoring service, receiving pre-approved credit card offers in the mail, landlords checking your credit as part of a rental application, insurance companies reviewing your credit for rate quotes, and existing creditors performing periodic account reviews. These checks may appear on your credit report, but only you can see them, and they have zero impact on your creditworthiness.

What Is a Hard Credit Inquiry?

A hard credit inquiry, also called a hard pull or hard check, occurs when a lender reviews your credit report as part of a formal credit application. Unlike soft inquiries, hard inquiries require your permission and can temporarily lower your credit score. This is because applying for new credit signals to credit scoring models that you may be taking on additional debt, which represents increased risk.

Common situations that trigger hard inquiries include applying for a credit card, applying for a personal loan, financing a car purchase, applying for a mortgage, requesting a credit limit increase, and opening a new cell phone account with a contract. Each hard inquiry typically causes a small dip in your credit score, usually around five to ten points, though the impact varies based on your overall credit profile.

How Hard Inquiries Affect Your Credit Score

The impact of hard inquiries on your credit score depends on several factors. Your overall credit history plays a significant role. If you have a long, positive credit history with many accounts, a single hard inquiry will have minimal impact. However, if you have a thin credit file with limited history, each inquiry carries more weight and may have a more noticeable effect on your score.

The number of recent inquiries also matters. One or two hard inquiries within a short period is normal and expected when shopping for credit. However, multiple hard inquiries within a few months can signal financial distress to lenders and have a more significant negative impact. Credit scoring models are designed to distinguish between someone responsibly shopping for the best rate and someone desperately seeking credit from any available source.

Rate Shopping Protection

Credit scoring models recognize that consumers should be able to shop for the best rates on mortgages, auto loans, and student loans without being penalized. To accommodate this, multiple inquiries for these loan types within a short window, typically 14 to 45 days depending on the scoring model, are treated as a single inquiry. This allows you to apply to multiple lenders and compare offers without damaging your credit score.

This rate shopping protection does not apply to credit cards. Each credit card application is treated as a separate inquiry regardless of timing. If you want to compare credit card offers, look for pre-qualification tools that use soft inquiries. Many credit card issuers now offer pre-qualification checks that let you see your approval odds and potential terms without affecting your score.

How Long Do Inquiries Stay on Your Report?

Hard inquiries remain on your credit report for two years, but they only affect your credit score for the first 12 months. After the first year, hard inquiries no longer factor into score calculations, though they remain visible to anyone who pulls your credit report. Soft inquiries may stay on your report for up to two years as well, but since they do not affect your score, their presence is inconsequential.

The impact of hard inquiries diminishes over time even within the first 12 months. A hard inquiry from eleven months ago has much less effect on your score than one from last week. As time passes and you continue to manage your credit responsibly, the effect of any individual inquiry fades to the point of being negligible.

Checking Your Rate with Fig Loans

At Fig Loans, we understand that you want to know your options without risking damage to your credit score. That is why checking your rate with us uses a soft credit inquiry that will not affect your credit. You can see your personalized loan offers, including your potential interest rate, loan amount, and monthly payment, without any commitment or impact to your credit standing.

Only if you choose to proceed with a loan application and formally accept an offer will a hard inquiry be performed. This approach allows you to shop confidently, compare our rates with other lenders, and make an informed decision without worrying about multiple hard inquiries hurting your credit score.

Tips for Managing Credit Inquiries

Being strategic about credit inquiries can help you maintain a healthy credit score. Before applying for any credit, research your options and use pre-qualification tools that only perform soft inquiries. When shopping for mortgages, auto loans, or student loans, complete all your applications within a short window to take advantage of rate shopping protection. Avoid applying for multiple credit cards in a short period since each application counts as a separate hard inquiry.

Regularly review your credit reports from all three major bureaus to ensure all listed inquiries are legitimate. If you see hard inquiries you did not authorize, it could be a sign of identity theft. You have the right to dispute unauthorized inquiries and have them removed from your report. Protecting your personal information and monitoring your credit regularly can help prevent unauthorized inquiries.

The Bottom Line

Understanding the difference between soft and hard credit inquiries empowers you to manage your credit more effectively. Soft inquiries allow you to check your credit and explore your options without any negative consequences. Hard inquiries are a normal part of applying for credit, but too many in a short period can temporarily hurt your score. By being strategic about when and how you apply for credit, you can minimize the impact of hard inquiries while still shopping for the best rates and terms available to you.