Hard and soft pulls on your credit happen when financial institutions or even employers look at your credit. But each type of credit pull produces a quite different result for your overall credit health.
What is a Hard Credit pull?
A hard pull, also known as a hard inquiry, happens when a lender or financial institution checks your credit when applying for several things like a loan, mortgage, credit card, auto financing etc.
The lender reviews your credit report and uses that information to decide whether to approve you or not. A hard inquiry will appear on your credit report and stay there for 18 months. Lenders can pull your credit if you authorize them to do so. Multiple hard inquiries in a short time span can lower your credit score. The reason is, they are a bit like red flags. When lenders detect several new inquiries on your credit report, it indicates your plans to open new accounts which could increase the likelihood you will miss or make late payments because now you have more debt to manage. That could make you appear riskier to potential lenders.
What if I am rate shopping for the best deal in the market?
Most credit scoring models do take this into consideration. For example, let’s say you’re comparing rates for the same kind of financial product, such as a mortgage or auto loan. If the same industry of lenders look at your credit report within a 45-day window, most credit scoring models will count that as a single inquiry. This way, your score does not drop each time you get a quote from a business loan lender, car dealership, mortgage lender etc.
How much do hard pulls affect my credit score?
That depends. Usually, hard inquiries make a minimal impact on a person’s credit score (around five to six points). That is because inquiries, although important, are not the most significant part of your credit score. Lenders also look at your credit history and if you were late recently on any payments and how many times you were late, if any. Still, a hard inquiry can impact your score in some way… how it does, that depends a lot on your credit history. For example, if your average age of credit is 20 years, then chances are a hard inquiry will barely affect your score. That is because you have proven to the credit bureaus agencies and scoring models, that you can manage credit for a long period of time. If you have a good or excellent score, that shows you are disciplined, responsible and have a habit of repaying your bills on time. But what if you only have a five-year credit history? Inquiries might have a greater impact on your score because you have less to show.
What is a Soft Credit pull?
A soft credit pull is much easier to deal with because it does not affect your credit score and it gives the lenders enough information to score you accurately when they are going through their approval process. Thor Capital Group only does soft credit pulls in our approval process to limit the hit to an applicant’s credit score and history.
Soft credit pulls are summary reviews of your credit report that do not hurt your credit score. When you get offers in the mail saying you have been Pre-Approved for a better car insurance policy or a new credit card, that’s a soft inquiry because the lender just viewed your credit highlights to see if you qualified for the offer.
Normally, you are the only person who can see soft inquiries on your credit report, but there are exceptions. Insurance companies might be able to see inquiries made by other insurance companies, and your creditors may be able to see inquiries made by debt settlement companies you have given access to your report.
Here are a Few Examples of when Hard and Soft Credit pulls are typically used.
Hard Credit Pulls.
- Applying for a mortgage.
- Applying for a car loan.
- Applying for a new credit card.
- Applying for a student loan.
- Applying for a personal loan.
- Applying to rent an apartment.
Soft Credit Pulls.
- Getting Business Financing from Thor Capital Group.
- Getting pre-qualified credit card offers.
- Getting an Insurance Quote.
- Getting a background check from an employer.