If you're familiar with the fact that when a lender or other entity pulls your credit it can hurt your credit rating, chances are that you've also heard the terms "soft inquiry" (or soft pull) and "hard inquiry" (or hard pull). What's the difference between the two types of inquiries?
Before getting into detail, let me just reveal the most important difference between the two types of credit pulls: a hard credit pull results in a hard inquiry on your credit report, and has a negative effect on your credit score. It is a relatively small effect compared to other factors that hurt your credit score, but too many hard inquiries in a short period of time can do enough damage to hurt you when it comes to applying for loans which pay attention to marginal differences in credit score.
A soft credit pull, on the other hand, only leaves records of a "soft inquiry." A soft inquiry is not supposed to hurt your credit rating at all. Although a record of the soft inquiry may be left on your credit report so that you can see who's checking, this trail does not hurt your credit rating, unlike its big brother the hard inquiry.
Now, let's go into a little more detail, and examine what exactly each type of credit inquiry entails. We'll also take a look into what sorts of institutions typically use each type of credit check so that you can know when to be concerned and when not to be.
All About Soft Inquiries:
We'll start with soft inquiries. A soft inquiry is often used by companies or employers who are performing a background check on you or creditors who are screening you for potential offers. When your credit is "looked into" by an institution without your precise knowledge, this will almost always be a soft inquiry.
As mentioned above, a soft inquiry does not harm your credit. When you check your own credit it is typically a soft inquiry as well.
How About a Hard
A hard inquiry does have a negative effect on your credit score. Credit profiles which are healthy overall tend to be affected less by the occasional hard inquiry, although constant hard inquiries can eventually drag an otherwise good credit rating through the mud.
These are the inquiries you want to be the most stingy with, and thankfully, a hard inquiry is the type of credit pull that you have the most control over.
A company usually needs your social security number and express permission to do a hard inquiry into your credit. When you apply for a loan or a new credit card, a hard inquiry will most often be used to determine your overall credit worthiness.
Hard inquiries give lenders a much more detailed profile on you than a soft inquiry, which only provides basic information.
What if I Want to Shop Around for the Best Deals on a Loan?
The intelligent consumer will often shop around before jumping into any sort of long term contractual loan agreement. Lenders often offer widely varying interest rates that will likely effect your decision. Luckily, the governing powers in the credit industry recognize this, and have made allowances which will allow you to shop around without hurting your credit score too badly.
If it is apparent that you are shopping around for the same type of loan, i.e. a car loan or a mortgage, then hard credit pulls in a brief period of time (two weeks is often cited as the time frame) will all count as one inquiry as far as your credit score is concerned.
Be aware, however, that this is simply idealistic theory. While every attempt is made to protect your credit while you shop for the best deal, many cosnumers have reported that they believe even related inquiries for a mortgage or car loan within a short period of time have hurt their credit score.
Hopefully, this information has helped you to understand the main differences between a hard inquiry and a soft inquiry!