Your credit report presents a picture of your financial history. It is comprised of several different factors, such as the length of your credit history, your credit card utilization rate, and your percentage of on-time payments. A credit inquiry is usually made when you apply for a mortgage, car loan, or credit card. An inquiry may also be made by a prospective employer or landlord.
There are two types of credit inquiries: soft and hard. Soft inquiries will reveal the same information that a hard check does, though the latter can affect your overall credit score when they are performed.
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A soft inquiry, sometimes called a “soft pull,” occurs when an individual or a company makes a credit inquiry as part of your background check. This may happen if you have applied for a credit card or if an employer is running a check before hiring you. The credit card companies you already have cards with may also perform a soft inquiry each month.
Examples of Soft Credit Checks
- Checking your own credit score: You may perform a soft credit check on your own report to monitor your progress.
- Employment background check: Your employer may do check to determine your eligibility for a job.
- Pre-qualified credit card offers: Prospective lenders may do so to determine if your score is strong enough to warrant a special offer.
- Pre-qualified insurance quotes: Insurance companies may check your credit to determine if you are a qualified candidate.
A lender, employer, or landlord can perform a soft inquiry without your permission. A soft inquiry will show your current credit card accounts, your payment history, and any collections accounts. This type of inquiry is usually performed as part of a background check. Soft inquiries are only visible when you check your credit report. They do not affect your credit score but will remain on your credit report for two years.
A hard credit inquiry, sometimes called a “hard pull,” occurs when a credit card company or lender checks your credit history before deciding whether or not to offer you a credit card or loan. This type of credit check generally takes place when you apply for a mortgage, auto loan, or credit card which needs to be authorized.
Checking your own credit score will not result in a hard inquiry. A hard pull can lower your credit score by up to five points, which can increase your interest rate on some loans. Hard inquiries will typically stay on your credit report for up to two years. A lender will need your permission to make this type of credit inquiry.
Examples of Hard Credit Checks
- Mortgage application: Lenders may perform a hard credit check to see if you qualify for a mortgage.
- Credit card application: Lenders may also make a hard inquiry to see if you qualify for a line of credit.
- Auto loan application: They may also do so to see if you qualify for an auto loan.
- Student loan application: Student loan lenders may check your report to assess your eligibility
- Home rental applications: Prospective landlords may do a hard credit inquiry to see if you will be required to pay advance rent.
- Personal or business loan application: Lenders may check your credit to assess your eligibility.
A hard inquiry will show where you have applied to get credit. This type of inquiry is triggered when you apply for a credit card, auto loan, mortgage, student loan, business loan, or personal loan. Recent hard inquiries on your credit report let a lender know that you have been shopping around for new lines of credit. If you are comparing rates for the best terms on an auto loan or utility provider and have multiple inquiries, these are generally only counted as one, provided they are all made within 45 days.
How to Manage and Protect Your Credit Score
Monitor Your Credit Score
You can monitor your credit score and keep track of your progress by checking your FICO credit score each month. This is easy to do, and you can do it through your bank or credit card provider for free in many cases.
To maintain a healthy payment history, you should set up automatic payments through online bill pay. This will make sure you avoid late payments. Your payment history is more important than you may think; your payment history accounts for one-third of your total credit score.
You can also manage your credit score responsibly by maintaining a low balance on your credit cards, paying off your debt rather than moving it around, and only opening new credit accounts when you really need them.
Plan Ahead When Shopping for Rates
Although you cannot completely avoid hard inquiries, you can limit them by being strategic with your money management. For example, don’t bother applying for credit lines that you know you’re not going to qualify for. Remember, when you’re shopping around for the best rates, conduct your searches within 45 days to minimize the impact on your credit score.
Monitor your credit throughout the process. If your bank or credit card company doesn’t offer free educational credit scores, there are many free credit score apps available.
Get Your Free Annual Credit Report
You are entitled to one free credit report each year from each of the three main reporting agencies; Equifax, Experian, and TransUnion. Requesting one will have no impact on your credit score.
You should review the reports carefully. If there is a discrepancy in the information between the reports, this could be because the different credit bureaus may each have different information. For example, you may have applied for credit under different names, or your lenders may have reported credit information at different times, which means they may not all be up to date.
Report Problems Immediately
If you notice that a hard inquiry has been run without your permission or you see any other inaccurate information on your credit report, you can dispute the issue with the appropriate credit bureau or the Consumer Financial Protection Bureau (CFPB). You’ll need to write them a letter explaining the error and include a copy of the report containing the error. You should receive a response within 30 days.
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