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Hard Inquiries and Soft Inquiries

 

 

Content from www.creditkarma.com

 

 

There are two kinds of inquiries that can occur on your credit report: hard inquiries and soft inquiries. While both types of credit inquiries enable a third party, such as you or a lender, to view your credit report, only hard inquiries can negatively affect your credit score.

What is a hard inquiry?

Hard inquiries generally occur when a financial institution, such as a lender or credit card issuer, checks your credit report when making a lending decision. They commonly take place when you apply for a loan, credit card or mortgage, and you typically have to authorize them.

Hard inquiries could lower your credit score by a few points and may remain on your credit report for two years. Fortunately, as time passes, the damage to your credit score usually decreases or disappears, often even before the hard inquiry falls off your credit report.

 

What is a soft inquiry?

Soft inquiries typically occur when a person or company checks your credit report as part of a background check. Examples include employer background checks, getting pre-approved for credit card offers and checking your own credit score. Unlike hard inquiries, a soft inquiry may occur without your permission. However, they won’t affect your credit score. Soft inquiries may or may not be recorded in your credit report, depending on the credit bureau.

One of the biggest credit misconceptions is that checking your own credit score using companies like Credit Karma will hurt your credit score. This is not the case. You can check your credit scores at Credit Karma as often as you like without affecting your credit score.

Examples of Hard Versus Soft Inquiries

Trying to figure out what type of inquiry will be placed on your report? Here’s a general guide.

Hard Inquiries
Usually

  • Applying for an auto loan, student loan, business loan or personal loan
  • Applying for a credit card
  • Applying for a mortgage

Sometimes

  • Applying to rent an apartment
  • Verification of identity by a financial institution, such as a credit union or stock brokerage
  • Renting a car
  • Getting a cable or Internet account
  • Opening a checking, savings or money market account
  • Requesting a credit limit increase
  • Getting a cell phone contract
Soft Inquiries
Usually

  • Checking your own credit score
  • Pre-approved credit card and loan offers
  • Background check, such as those done by employers

Sometimes

  • Applying to rent an apartment
  • Verification of identity by a financial institution, such as a credit union or stock brokerage
  • Renting a car
  • Getting a cable or Internet account
  • Opening a checking, savings or money market account

If you’re unsure of whether a financial action you’re about to take will result in a credit inquiry, ask the financial institution or company. And if a financial institution or company informs you that they will be checking your credit, ask them to distinguish whether or not it is a hard or soft inquiry.

Why Hard Inquiries Hurt Your Credit Score

While hard inquiries are necessary for certain financial actions, such as applying for a loan or credit card, they should be limited as much as possible. Your credit score may be penalized for multiple hard inquiries because applying for too much credit at one time may indicate that you’re desperate for credit or aren’t able to qualify for the credit you need. While one hard inquiry will usually just knock a few points off your credit score (if any), multiple hard inquiries in a short amount of time may cause significant damage to your score.

Keep your hard inquiries to one or two a year if you can. Credit Karma data shows that on average, consumers with lower numbers of hard credit inquiries have higher credit scores.

How to Dispute Hard Credit Inquiries

If a hard inquiry occurred without your permission, check your credit reports to see the full details of the inquiry and determine if you should attempt to dispute it.

Note that you can only dispute hard inquiries that have occurred without your permission. If you’ve authorized the hard inquiries, it generally takes up to two years for them to fall off your report.

Conclusion

Before applying for credit, take time to build your credit score. With a higher credit score, you may improve your chances of being approved for the financial products you want at the best terms and rates.

To keep track of hard inquiries, check your credit scores and credit reports at Credit Karma. In addition to providing you with your free credit scores from TransUnion and Equifax, Credit Karma can notify you of any important changes to your TransUnion credit report, including any new hard inquiries.

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