Hard Credit and Soft Credit Pulls: What You Need to Know

Understanding Hard and Soft Credit Pulls

Hard Credit and Soft Credit Pulls: Key Differences

When applying for a loan, your personal credit score plays a crucial role. Even if you maintain good Hard Credit and Soft Credit Pulls, such as making timely payments and managing balances, a simple credit inquiry can impact your score. This effect hinges on whether the credit check is a hard pull or a soft pull.

Hard Pull of Credit Score

Impact on Your Credit Report:

• Definition: A hard pull, also known as a hard inquiry, is a credit check that appears on your credit report. It signals to potential lenders that you are seeking new financing.
• Effects: Hard pulls typically cause a minor dip in your credit score—about five points—for roughly six months. However, it remains visible on your report for one to two years, varying by Hard Credit and Soft Credit Pulls. For example, Experian keeps hard pulls for two years, while TransUnion retains them for one year.
• Cumulative Impact: Frequent hard pulls within a short timeframe (e.g., applying for multiple loans or credit cards in a few months) can lead to a more significant score decrease, sometimes up to 20 points.

Rate Shopping and Its Effects:

• Understanding Rate Shopping: When shopping for the best loan rates, applying with several lenders within 30 to 45 days is common. Credit bureaus typically treat these inquiries as a single event if they are for the same type of loan.
• Strategy for Minimizing Impact: To avoid unnecessary drops in Hard Credit and Soft Credit Pulls, conduct thorough research on lenders and prepare all necessary documents before applying. This preparation helps ensure that all your applications fall within the 30 to 45-day window and minimizes the number of Hard Credit and Soft Credit Pulls.

Credit Types and Their Effects:

• Unsecured Credit: Applications for unsecured credit (e.g., credit cards) generally have a more significant negative impact compared to secured credit, due to the higher risk associated with unsecured lending.

Soft Pull of Credit Score

Characteristics of a Soft Pull:

• Definition: A soft pull, or soft inquiry, does not appear on your credit report and does not affect your credit score. It is often used for preliminary checks, such as when a credit card company sends a pre-approval offer or an employer reviews your credit for a job application.
• Difference from Hard Pull: Unlike a hard pull, a soft pull is used to assess creditworthiness without the intention of providing new credit, and thus does not indicate a request for financing.

Who Performs Soft Pulls:

• Typical Users: Soft pulls are commonly performed by landlords, employers, and existing creditors. They may also be used by banks for identity verification when opening new accounts.
• Consumer Requests: When checking your own credit report, this is considered a soft pull and does not impact your score. You are entitled to one free credit report from each bureau annually.

What to Do If You Find an Unauthorized Hard Pull

Steps to Take:

• Review Your Report: Before applying for a new loan, review your credit report to ensure accuracy. Correct any errors to improve your credit score.
• Dispute Errors: If you find an unauthorized hard pull, dispute it with the credit bureau and contact the creditor involved. Unauthorized hard pulls could indicate identity theft and should not be ignored.

Conclusion

Understanding the differences between Hard Credit and Soft Credit Pulls is essential for managing your credit effectively. By knowing how these inquiries impact your credit score, you can make informed decisions about applying for new credit and maintaining a healthy credit profile.