Soft vs. Hard Credit Check: How Do Credit Inquiries Work?

When lenders or creditors want to check your credit history before issuing you a loan or credit card, they perform a credit inquiry, also known as a credit check. Based on the information they find, including your credit score, they’ll determine how creditworthy you are and whether to approve your application.

However, there are two types of credit inquiries, commonly referred to as soft and hard. Hard inquiries will affect your credit score, while soft inquiries won’t make a difference.

What is a soft credit inquiry?

A soft credit inquiry, sometimes referred to as a “non-credit related inquiry,” allows a qualified party to see your payment history, the loans and lines of credit you currently have open, and your credit utilization ratio, among other things.

A soft credit score is performed for reasons other than applying for credit, such as when you apply for a lease or check your own credit report. A soft credit check does not have a negative impact on your credit score.

Some lenders may perform soft credit inquiries as a quick way to see if you’re generally the type of borrower who might qualify for a loan or credit card. For this reason, a soft credit inquiry may be referred to as “pre-qualification.” Even if you’re prequalified, hard credit inquiry is typically required in order to officially be approved for a loan or line of credit.

What is a hard credit inquiry?

A hard credit inquiry is a formal review of your credit report and is typically a mandatory step any time you’re applying for credit. Hard credit inquiries provide lenders with a detailed look at your credit history, including your credit score, length of credit history, types of credit you’re using, and more.

A hard inquiry does have a temporary negative impact on your credit score, however multiple applications for credit within the same time frame — like 45 days — are counted as a single inquiry. This allows people to shop around for some products, like mortgages and car loans, without significant damage to their credit score.

Some situations where a hard inquiry is performed include:

Since hard inquiries affect your credit score negatively and stay on your history for three years, you must give the lender permission to perform one. If you’re applying for a job, you can ask the employer if their inquiry will be a hard or soft check.

How to limit the impact of credit inquiries

It’s impossible to avoid hard inquiries altogether unless you never apply for credit. But a few simple strategies can minimize the effects on your credit score.

Limit or spread out your credit applications

Even though hard inquiries affect your credit, your score will recover over time. That means you can spread out your applications to give your credit score time to rebound in between them.

Avoid making multiple credit applications in a short period of time, since this could make your credit score drop quite a bit. This is especially important if you plan on applying for a mortgage in the near future, as lenders will be concerned about multiple recent hard credit checks on your account.

Dispute any errors

Since authorization is required for hard inquiries, you can dispute any inquiries on your account for which you didn’t give permission. Get in the habit of reviewing your credit report regularly through both Equifax and TransUnion. Although it may sound tedious, it could help you avoid fraud and it is smart financial management.

Use pre-qualifications when available

When you apply for pre-qualification for a loan, mortgage or credit increase the lender will run a soft credit check, so you don’t have to worry about your credit score dropping. You might even request pre-qualifications from several lenders to compare your options. When you’re ready to make your purchase and you’ve chosen one particular lender, you can formally apply for the credit, so only one hard credit inquiry is performed.

Understand the exceptions

If you are shopping for certain types of loans, such as a mortgage, you have some leeway. Multiple applications during a specific time frame — 14 to 45 days, depending on the credit scoring model — will be treated as a single inquiry. While each inquiry will show up on your credit report, only one will impact your score. This exception allows you to shop around and find the best rate without damaging your credit report.