Hard or soft credit checks: what you need to know
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When you apply for credit, lenders want to know that you can pay off your debt. They will therefore examine your credit history.
An indirect credit inquiry is a high-level review and does not affect your credit. But a rigorous credit check is a deeper dive and can affect your credit score. It is important to note that no one is supposed to review your credit without your consent.
Here’s what to know about credit checks, when a lender might do one, and how it can affect your credit.
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Hard credit check vs soft credit check
Companies might want to review your credit in many situations. They can do it with two types of credit checks — soft credit checks and hard credit checks.
Soft credit checks typically occur when you apply for a pre-approved offer, a lender performs an account review, or the company reviewing your credit is not a lender. A soft credit check does not affect your credit score. You will often come across soft credit checks when someone needs to do a credit check for something other than lending money.
On the other hand, a rigorous credit check can negatively affect your credit score, although the impact is not substantial and is likely to be brief. You will likely face a rigorous credit check when applying for credit products, such as a credit card, loan, or line of credit. A hard credit check can stay on your credit report for up to two years, while soft credit checks don’t appear on your credit report at all.
Examples of common credit applications
A few situations can lead to serious credit inquiries, including:
- Apply for credit products like a personal loan, credit card or mortgage
- Apply for an apartment rental
- Request a credit limit increase, depending on the lender
- Open a new service account, such as phone or internet
You can compare rates from multiple lenders without affecting your credit when you use Credible.
Examples of Common Soft Credit Requests
Indirect credit withdrawals occur when the credit check is not performed when applying to borrow money. For example:
- A utility company can use a credit check to decide if you need to post a security deposit.
- Auto insurers may consider your credit score when determining your insurance premium.
- Some employers do credit checks as part of a background check during the application process.
How to Dispute Difficult Credit Applications
It is good practice to review your credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) regularly to check for errors and get an idea of how you can improve your credit score.
It is possible that a serious request will appear on your credit file without your consent. Finding an unapproved credit check on your credit file can be a sign of criminal activity, such as identity theft. Since serious credit inquiries can hurt your credit score, it’s important to have inaccurate or unauthorized ones removed.
Credit reports usually contain a contact section that tells you how to contact the creditor who conducted the credit investigation. It’s important to note that if you don’t recognize a creditor, that’s not necessarily a sign of identity theft. The creditor could be a partner of a company from which you actually applied for credit. Some retailers that offer credit cards may have a lending partner, and auto dealerships may work with third parties to issue auto loans.
If a credit issuer made a mistake, you can work with them and the credit bureau to correct the error that appeared on your credit file. If you confirm that the credit inquiry is related to fraudulent activity, you can take steps to have the inquiry removed from your credit report:
- Report criminal activity to law enforcement.
- Place a fraud alert or security freeze on your credit reports to protect them until the problem is resolved.
- Dispute the application with the credit bureau that created the credit report to have it removed from your report.
Why Hard Asks Matter
Credit checks are often necessary when you want to borrow money, but unnecessary inquiries are best avoided as they can hurt your credit score.
To keep your credit score healthy, avoid applying for several new credit products, such as loans or credit cards, in a row. Some credit scoring models will count multiple firm credit applications as one application if they are for the same type of credit product made within a short period of time.
For example, it may not be a good idea to apply for a credit card, Personal loan, and car loan at the same time, because these three loan requests would count as three different difficult inquiries. But if you’re looking for a personal loan, you can apply to three different lenders to see which one will give you the best rates and terms – and that would count as one serious request, provided it happens within a short period of time. If possible, limit your buying period to just two weeks. That said, FICO does provide a bit more wiggle room for the auto, mortgageand student loans giving you 30 days to shop around without hitting your credit score multiple times.
When lenders see several difficult requests on a report in a short period of time, they may think you are in financial difficulty. This could make them less likely to lend to you or more likely to offer you higher interest rates.
Serious inquiries can hurt your credit score, but their negative effect is rarely significant and does not last forever. In fact, an additional credit inquiry reduces credit scores by less than five points, according to FICO. Serious inquiries typically drop off credit reports after two years, but FICO scores only consider inquiries from the last 12 months.
Inquiries only make up 10% of your credit score, according to FICO. Your payment history and overall amount of debt have a much bigger impact on your credit score.
Purchasing fares does not affect your credit when using Credible for compare multiple lenders.