What Is The Difference Between A Hard and Soft Credit Check?
It is wise to conduct regular credit checks. You must know the difference between checking Equifax credit reports and TransUnion credit reports. Also, it is essential to understand how to allow someone else to access your credit information. Hard inquiries can cause credit scores to be affected. These numbers will not be affected by soft inquiries.
What is a Credit Inquiry? How can it help me?
A credit inquiry is a process of asking and receiving credit information. First, the party must submit a request (or “inquiry”) to one of three credit bureaus. The credit bureau will give you your credit report if you are allowed to do so. This exception is only for credit data that has been blocked.
Federal law allows you to see credit information that others have accessed. Credit reporting agencies must record each credit inquiry, also known as a credit check or credit pull. Credit inquiries are usually kept on your credit file for up to two years.
The Credit Check: Easier vs. harder
There are two types of credit checks: hard and soft. This distinction refers to the possible impact that each type of credit check may have on credit scores.
Hard Credit Check
When you apply for something, a hard credit inquiry will be conducted. A complex search can affect your credit score if it appears on your credit report.
These are difficult questions.
- Loan applications (mortgage, auto, student, personal, etc.)
- Application for a credit card
- Credit limit increase requests
- Lines for credit applications
- Utility applications are being developed
- Apartment rental applicant
- Collection agency skip tracing
Soft Credit Check
Your credit score is not affected by soft credit inquiries. Soft credit inquiries will not be visible if a lender checks credit files. Soft inquiries can only be revealed by consumer disclosures or credit reports requested.
These credit checks are known as soft inquiries.
- Credit checks for individuals
- Pre-approved credit options
- Application for insurance
- Current creditors may review accounts
- Apply for employment
Credit Scores and Hard Credit Checks
What’s the point of asking hard questions?
Lenders can pull your credit reports and impact your credit score. It’s simple math. Statistics show that credit applicants are more likely not to get approved than those who apply.
FICO reports that those with at least five credit inquiries within the last 12 months are six-fold more likely to be late on credit obligations by 90+ days than those with zero queries. People with six credit inquiries or more are eight times more likely to file bankruptcy than those with zero questions.
Lenders and other companies use credit scores to predict your risk when doing business with them. FICO credit scores and VantageScore credit scores indicate whether a consumer will. Your credit score may drop if you are more likely than others to default on credit obligations. Your credit score could be affected by hard credit inquiries or other actions that increase credit default on any credit obligations within the next 24 months (aka become more tard than 90 days).
Risk (such as high credit card usage, late payments, and additional derogatory credit information).
How much does a hard inquiry cost?
FICO states that a new inquiry won’t generally lower credit scores by more than five percentage points. An older inquiry should be canceled until its effect is diminished. The entire credit scoring process can be more complex if it is broken down.
Hard credit inquiries do not affect your credit score. Credit inquiries are only 10% of your credit score, according to FICO scoring models. Your payment history contributes only 35% of your FICO Score. VantageScore’s credit scoring models place less importance on hard inquiries. VantageScore only calculates 5% of your score based on hard inquiries.
Credit inquiries have a range of points. For example, you can not say that a new credit inquiry will lower your credit score by five points. Credit scoring is different.
Credit scoring models instead consider both the total number and age of inquiries. You should also know your credit history. Credit history can have a more significant impact than credit history.
What length of time can inquiries stay on your credit reports?
Most credit reporting is voluntary. Credit card issuers do not have to disclose customer information to credit bureaus. Credit bureaus do not require credit reporting to report credit card accounts. Credit reports contain account information to help companies improve their bottom lines.
Different inquiries are accepted. Various inquires are accepted. Credit bureaus must inform who credit information is given. Fair Credit Reporting Act (FCRA) states that most inquiries should remain on your credit report for at least 12 month. You must keep employment inquiries on your credit reports for at least 24 months.
Credit reporting agencies usually keep credit inquiries on credit records for two years. FICO will only take into account hard inquiries that were made within the past year. If a hard inquiry is ongoing for more than one year, your FICO Score won’t be affected.
VantageScore is now more open to inquiries. For inquiries that aren’t negative, VantageScore will usually give a lower credit score.
Shop at a Special Rate
Credit scores can be negatively affected by hard inquiries, as mentioned. Frequent credit applications could indicate higher risk. This could be a sign that you’re in financial trouble. Rate shopping is an exception.
This is a sign you are financially responsible. Before applying for a loan, research the best interest rates. VantageScore and FICO handle these types of inquiries differently.
This is called deduplication. Let’s take a closer look at the process.
- FICO offers a safe harbor period of 45 days. FICO will consider all student loan, auto, and mortgage inquiries as one inquiry if they are received within the 45-day deadline. Some lenders still use older FICO scoring models. They have a 14-day window.
- 14-day Safe Harbor Period: VantageScore considers all inquiries received within these 14 days as one inquiry.
Regular credit reporting reviews are an intelligent thing to do. You should be looking at your credit reports to identify any errors or fraud which could impact your credit score. Thanks to the FCRA, you can claim a free copy of all three credit reports once every 12 months from AnnualCreditReport.com.
Hard credit inquiries have a minimal impact on credit scores if any. However, credit inquiries have a lower impact than other factors on credit scores.
Credit is not something you should be worried about. Credit scores will not be affected by these checks. It is better not to limit your hard credit checks.
Your credit score will not be affected by a single credit application. Within 30 days, you can typically rate shop for student loans or auto loans. If you apply for too many accounts at once, your credit score may be negatively affected. This could result in you needing to rebuild credit.