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Credit Checks: Soft Inquiry vs. Hard Inquiry, What’s the Difference?

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Whether you’re new to borrowing money, or you have borrowed before, you may know that the process often involves an inquiry into your credit report, also known as a credit check. But not all credit checks are equal — some are considered soft and others hard. What is the difference between hard and soft credit inquiries?

Some lenders can give you estimated loan terms or pre-approval based on a soft pull, but require a hard pull if you want to proceed with the application. However, it can sometimes be difficult to determine if even a short application will result in a hard or soft inquiry. If you’re in doubt, contact the lender and ask.

Soft inquiry vs. hard inquiry visualized

Hard Credit Check Soft Credit Check
Requesting your own credit report through Transunion, Equifax or Experian No No
Applying for a student loan Yes No
Checking your rate through Earnest No Yes
Applying for a car loan Yes No
Applying for a mortgage Yes No
Applying for a personal loan Yes No
Applying for a credit card Yes No
Pre-qualifying for a credit card No Yes
Background check for job No Yes
Applying for an apartment Maybe Maybe
Applying for a line of credit or to increase your credit limit Yes No
Rate shopping through interest rate comparison sites No Yes

 

What is a soft inquiry?

A soft credit inquiry (also commonly called a soft credit check, soft check, soft credit pull, or soft pull) occurs when a company or person looks at your credit report for a reason other than underwriting a loan. Keep in mind that these may or may not happen with your permission.

For example, some lenders allow you to get an estimated rate for a loan before you complete a full loan application. This typically involves a short application that sends a soft pull to your credit report.

Checking your own credit score is also considered a soft credit pull. If you currently have a credit card, the issuer may also occasionally perform a soft credit inquiry for account maintenance, which could lead to your card’s credit limit changing.

Besides underwriting a loan, there are additional reasons for a soft pull to occur:

  • “Pre-qualified” credit cards
  • “Pre-qualified” insurance quotes
  • Employment verifications and background checks
  • Self credit score checks

How does a soft inquiry affect my credit score?

Remember, soft credit checks will not hurt your credit and are only visible to you when you review your credit report. If someone other than yourself looks at your credit report, they will only see the hard inquiries.

At Earnest, our two-minute Rate Check is always a soft inquiry and never hurts your credit. Checking your own credit is always a soft pull, while applying for a loan is a hard pull. An application for an apartment, signing up with a new internet or cable service provider, or renting a car can lead to either type. Again, if you’re unsure, ask the provider before completing an application.

What is a hard inquiry?

When you’re ready to complete a full application to borrow money—whether that’s for a credit card or loan application—lenders typically make a hard credit report (or hard credit pull) on your credit as part of the underwriting process. This allows your credit report to be reviewed by the financial company.

Regardless of the result of your application, a hard pull typically lowers your credit score by a few points and will remain on your report for two years. If you make too many hard-pull inquiries in a short period of time, it can have a short-lived impact on your credit score. When lenders see several credit applications in a short period of time, they assume that you have poor money managing skills and are unable to pay your debt with your existing income, making you less likely to be able to pay them back.

How does a hard credit inquiry affect my credit score?

According to credit scoring agencies Fair Isaac Corporation (FICO) and VantageScore, which create the most widely used consumer credit scores, hard credit inquiries can have an impact on consumers’ credit scores—but it’s often only a small change (a few points) and it’s not permanent.

Hard pulls can have the greatest impact on those with only a few credit accounts and the impact may increase the more inquiries you have. However, if you’re shopping to find the best rate for a loan or mortgage, VantageScore considers all inquiries made within a 14-day window as one inquiry when calculating your credit score. FICO considers multiple mortgage, auto, and student loan inquiries made within 14 to 45 days as one inquiry. This one inquiry could incur a small, temporary change on your credit. FICO scores also don’t take into account any mortgage, auto, or student loan inquiries made in the last 30 days.

While hard inquiries remain on your credit report for two years, they only impact your FICO credit score for up to one year. VantageScore states that a credit score will generally be back to its starting point within a few months of a hard inquiry.

Your FICO is determined by the following factors, with the weighting for each factor in the calculation:

  • Payment History (35%)
  • Credit Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Credit Mix (10%)

It is important to note that credit card utilization and payment history have a greater impact on a person’s credit score than the other factors listed.

When else might you encounter a hard credit pull?

How to remove hard inquiries from your credit report

While a single inquiry likely won’t drop your credit score to the point where it affects your ability to get a good interest rate, it’s still useful to know what types of inquiries are being made on your behalf—just in case something is amiss.

The three major credit bureaus—Experian, Transunion, and Equifax—are required to provide you with a free, full credit report once per year upon your request. It’s good to review these reports occasionally to make sure there’s nothing strange or inaccurate showing up on your report, such as a hard inquiry you don’t recognize. If you see a hard inquiry you didn’t request, it could be a sign of identity theft—that someone is applying for a credit offer on your behalf or has posing as you. You can dispute these inquiries with the bureau and they’re obligated to investigate.

How do I boost my credit score?

There are some changes you could make if you see room for improvement in your credit score:

1. Monitor your credit report and create a plan of action

You can monitor your credit report and credit score in several different ways. If you’re seeking information about your score specifically, you can get free credit updates from Experian, Credit Karma, and many other sites. Your credit card issuer may also have a service allowing you to regularly check your score and see detailed information about your file for free. You can also request your full credit report for free — excluding your score, which incurs a fee — from annualcreditreport.com once per year.

Some of these websites also provide insights as to what’s impacting your score, which can be helpful as you assess how to move forward. For example, if you have a habit of applying for new credit cards every time you make a big purchase, or saying yes to pre-approved credit card offers in order to capitalize on signup bonuses, that could impact your score over time. You can see whether your average account age is being pulled down by too many new cards, or whether an old account you haven’t been using might be helping to outweigh a newer account.

Additionally, you can see whether you have had late payments that are affecting your score, or whether you have an old account you’ve forgotten about that has an outstanding balance. Once you know what’s bringing down your score, you can create a plan of action to resolve it.

2. Set up autopay

Your payment history makes up 35 percent of your score, so making on-time payments on your debts is one of the most important things you can do to prove your creditworthiness. It shows

credit card companies and potential lenders that you’re not a risk, and it makes it easier for them to say yes to your applications and can potentially lower your interest rates. Setting up autopay on all of your accounts keeps you from missing any payments or being late. Just make sure you also have money in your checking account to cover the full amount of the autopayment.

Bonus? Some companies, like Earnest, will even give you an interest rate discount in exchange for signing up for autopay1 — lowering your payments and shortening the amount of time it takes to pay off your debt.

3. Lower your credit utilization rate

Your credit utilization rate is how much of all the types of credit available to you you’re using at any one time. For example, if all your credit card limits and lines of credit combined add up to $15,000 and you rarely carry a balance of more than $1,500, you have a credit utilization rate of 10%.

This number makes up 30% of your credit score and can be a sign to lenders of how responsible you are with money. Fair or not, the assumption being made is that if you’re using most of the credit available to you, you may be overspending. You can lower your credit utilization rate by getting more credit — such as by applying for an extra credit card or an increased credit limit on an existing card — or by paying down your balances and using cash or debit cards more frequently.

4. Beef up your credit history

Signing up for a credit card, if you don’t have one, is one of the fastest ways to improve your credit score as long as you make all of your payments on time. However, if you’re a current student or new graduate, it can be hard to build your credit history. But some services now allow you to report payments for rent or even your cell phone, internet, or streaming services so that they can add these to your personal credit history. This can help you build your credit history faster if you don’t yet have a credit card or the ability to get one — you can pay for those services with a debit card.

5. Don’t close your old accounts

Credit scoring models weigh the age of your accounts to see that you have a longstanding history of paying off your balances on time. The longer you’ve been making on-time payments, the more trustworthy you seem. While it may seem like a good idea to close an old account you aren’t using, this can decrease your credit history and impact your score negatively. It’s generally best to leave such accounts open if they’re not costing you money in annual fees.

Alternatively, if you have multiple credit cards with the same company and you want to close one of them, you may be able to ask the company to transfer your available credit from the account you want to close into one you want to keep open. For example, if you want to close credit card A which has $5,000 of available credit and you want to keep credit card B which has $6,000 of credit available to you, you could ask to combine the two so that credit card B now has $11,000 of credit. While this will result in closing one of those accounts, it can help maintain a healthy credit utilization rate as you’ll have more credit available to you than you need to use.

6. Pay off delinquencies

If you see any delinquencies on your credit report — accounts with missed or late payments — you can improve your score by paying off those accounts and getting them up to date. If you’re unable to make payments, it’s better to contact your lender or credit card company to ask about your options than to ignore the bill, which can drive you deeper into the hole.

7. Consider refinancing your debt

Your debt-to-income ratio and your credit utilization can impact your credit score. One way to decrease this ratio and improve your score is to pay off your debt — obviously, easier said than done, unless you happen to have a big savings fund you can tap to pay down some of the balance.

In the meantime, refinancing your debt may be able to help you pay it off faster and at a lower cost2. Let’s say, for example, that you have $10,000 of debt left at a 5% interest rate and a $175 monthly payment. By refinancing to a 1.74% variable interest rate — Earnest’s lowest current rate, including a .25% autopay discount — you could save about $1,000 in interest in the span of a new five-year term3. By reinvesting those savings into paying off your principal balance a little faster with a few extra dollars each month, you could save even more money.

See how much you could save with Earnest

The bottom line is that your credit score is one of the most important tools you have to access low-cost financing for education, home purchases, car loans, and other types of loans and credit. Keeping an eye on your score and your file can help make it easier for you to improve fair credit to excellent credit and meet your personal finance goals.

Refinancing your student loans through Earnest is a soft credit check that won’t impact your credit score — and it could save you potentially thousands of dollars over the time frame of your loan4. Take two minutes today to find out how much you could save.

 

 

 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

2 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for total cost of your refinanced loan.

3 Earnest’s Loan Cost Examples: These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $XX) and a X.XX% APR would result in a total estimated payment amount of $XX,XXX.XX. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $XX) and a X.XX% APR would result in a total estimated payment amount of $XX,XXX.XX. Your actual repayment terms may vary.

4 Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 48 states Earnest Operations LLC is authorized to lend in (all but Kentucky and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Refinancing is subject to credit qualifications. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit www.earnest.com/licenses for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.  

Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.  

 © 2022 Earnest LLC. All rights reserved.

 

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.