Whether you’re applying for a loan or simply curious about your credit score, understanding several basic terms is crucial. What’s the difference between hard and soft inquiries, anyway? Why does it matter? Also, how long do hard inquiries stay on your credit report?
Today, we’ll be breaking down the definitions of hard and soft inquiries, exploring their impact on your credit score, delving into their frequency and duration, and discussing the importance of obtaining consumer permission.
Understanding the Definition
So, let’s start with the basics: what exactly are hard and soft inquiries? A hard inquiry basically occurs whenever a lender or creditor pulls your credit report to assess your creditworthiness. This typically happens when borrowers like us apply for a loan, credit card, etc. Hard inquiries are often visible to those who view your credit report and can impact your credit score. On the contrary, soft inquiries are more like background checks that don’t affect your credit score. They occur when you check your own credit report or when companies perform pre-approved offers or employment screenings. Soft inquiries are only visible to you and do not have any negative impact on your overall credit health.
Impact on Credit Score
While both types of inquiries involve a review of your credit history, they can affect your score in different ways. Hard inquiries do have an impact on your score due to the fact that they indicate you are actively seeking new credit. However, the effect is usually minimal and temporary. On the other hand, soft inquiries occur when someone checks your credit report for non-lending purposes. This includes checking your own credit report or when potential employers perform background checks. Soft inquiries do not have any negative impact on your credit score since they are not associated with seeking new lines of credit.
Frequency and Duration
When it comes to frequency, hard inquiries can have a more pronounced impact on your credit score. Every single time you apply for a new loan or credit card, a hard inquiry is generated. These inquiries are visible to lenders and can stay on your credit report for up to two years. Having multiple hard inquiries within a short period may raise concerns among potential lenders as it suggests you might be taking on too much debt. Meanwhile, soft inquiries do not affect your credit score and occur without your explicit permission. They typically happen when companies perform background checks or pre-approval screenings that don’t involve seeking new lines of credit.
Consumer’s Permission
With hard inquiries, consumers typically give explicit consent for a lender or creditor to access their credit information. This usually happens when applying for a loan, credit card, or mortgage. By giving their permission, consumers acknowledge that they are actively seeking new credit. On the flip side, soft inquiries do not require the same level of authorization from consumers. These types of inquiries are often initiated by companies conducting background checks or monitoring existing accounts. While these inquiries do appear on your credit report, they have no impact on your credit score and are only visible to you.
Understanding the difference between these two inquiries can empower individuals to make smarter financial decisions while also safeguarding their personal information. Always stay vigilant in granting permission for access to your credit report and monitor it regularly for any unauthorized activity.
