When it comes to your credit, it’s crucial to know the distinction between a credit hard pull and a soft pull. These terms may sound similar, but they have different effects on your credit score and are used for different purposes. Let’s break it down.
What Are Credit Pulls?
Credit pulls are requests made by lenders or financial institutions to review your credit report. These inquiries provide insights into your creditworthiness and help determine if you get approved for a loan, credit card, or other financial products. There are two types: hard pulls and soft pulls.
Hard Pull (Hard Inquiry)
A hard pull is a thorough examination of your credit report and typically happens when you apply for credit, like a mortgage, car loan, or credit card.
Impact on Credit Score: Hard inquiries can have a negative impact on your credit score, but it’s usually small (less than 5 points). However, multiple hard pulls in a short period can add up.
How Long It Stays on Your Credit Report: Hard inquiries stay on your credit report for two years, but they only affect your credit score for the first 12 months.
Consent Required: Lenders need your permission to do a hard pull.
Soft Pull (Soft Inquiry)
A soft pull is a less detailed examination of your credit report. It happens when a person or company checks your credit for background purposes, like a potential employer or when you check your credit score yourself.
Impact on Credit Score: Soft inquiries do not impact your credit score at all. You can have as many soft pulls as you want without any effect on your credit standing.
How Long It Stays on Your Credit Report: Soft pulls may or may not be recorded in your credit report, depending on the credit bureau. If they are recorded, only you can see them, and potential lenders cannot.
Consent Required: In general, soft pulls can happen without your explicit consent.
Key Differences at a Glance
Purpose: Hard pulls are commonly associated with credit applications, while soft pulls often happen without your knowledge, such as routine checks by existing creditors or personal credit score assessments.
Impact on Credit Score: Hard pulls can lower your credit score, while soft pulls have no impact.
Duration on Credit Report: Both types may be recorded on your credit report, but only hard pulls are visible to potential lenders.
Consent: Hard pulls require your explicit consent, while soft pulls generally do not.
Understanding the difference between hard and soft credit inquiries is crucial for managing your financial well-being. Hard inquiries are necessary for obtaining new credit, but they should be used wisely to avoid potential negative effects on your credit score. On the other hand, soft inquiries provide flexibility for businesses and individuals to assess creditworthiness without any negative consequences.
Being aware of the types of inquiries and their impact on your credit profile empowers you to make informed financial decisions and maintain a strong credit position. If you’re ever unsure about a credit inquiry, don’t hesitate to ask the institution making the request if it’s a hard or soft pull, so you know what to expect.