What’s the Difference Between a Soft and Hard Credit Inquiry?

As many consumers are paying much more attention to their credit score and the components that make up the credit score calculation, many wonder how credit inquiries impact their credit. There are two types of inquiries related to your credit report – soft inquiries and hard inquiries. Here’s what you need to know.

A hard inquiry is what occurs when you apply for any kind of credit by submitting an application. This is when a lender checks your credit history report and credit score in order to make a decision about extending you a line of credit or other financing. A hard inquiry on your credit will remain visible on your credit report for two years but it is only used in the calculation of your credit score for one year.

A soft inquiry on your credit report can come about in several ways. First, when you want to check your own credit report and request a copy from the credit reporting agencies, you’ll incur a soft inquiry on your report. It will also happen when existing creditors do to periodically review your credit file. Additionally, when any company looks at your credit history for their own marketing reasons, you’ll see a soft inquiry show up on your report. Unlike a hard credit inquiry, soft inquiries have no impact on your credit score.

When reviewing your own credit reports, you will see all of the soft inquiries that were made so you’ll now who has been checking you out. However, creditors and lenders that are reviewing your report will only see the hard inquiries. Many people have been concerned that their own inquiry into their credit score and history will have a negative impact on the calculation of their score and therefore do not request a copy of their credit report to review. The problem lies in the fact that these consumers will remain in the dark about any incorrect or mistaken information that does have a negative impact on their credit score.

It is recommended that you get and review a copy of your credit report at least once a year. By law, all consumers are allowed to receive one free copy of their credit report from each of the three agencies every 12 months. These reports do not come with the credit score. To see your score, you’ll need to specifically request and pay for it. Analyze your credit report and be sure to report any incorrect information immediately as even simple things can bring down your credit score.

When you are applying for new credit cards or other financing, remember that for every application you consent to, a hard inquiry will show up on your report. Too many hard inquiries will drag down your credit score so never randomly apply for credit cards or loans without careful consideration and research. Credit scores now need to be in the range of 720 or higher to be considered excellent. Since lenders and creditors are looking much more carefully at a consumer’s financial history, a good credit score and solid credit history are very necessary.

Keeping tabs on your credit will help you make the best financial decisions for your situation. Your credit report defines who you are to creditors and lenders and if you ignore your score, you’ll likely be refused credit when you really need it the most.

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This entry was posted on Friday, June 26th, 2009 at 10:03 am and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.