The mystery of hard and soft inquiry and how to avoid one

Checking credit scores may be difficult at times. If there occurs a hard pull or a hard inquiry, your scores might fall down by a few points.

There is a division in the type of inquiry done on credit reports. They are soft inquiry and hard inquiry.

It is better to understand what is an ‘Inquiry’ first. An inquiry is done whenever you apply for any form of credit or when you consent in a revision check of your credit report.

The possibilities of knocking out a good number of points from your credit score during an inquiry is actually minimal.

A "soft inquiry" is the one that only takes place during a normal scan of your credit report. This could be you, evaluating your credit score online, or while you get an offer for a pre-approved credit card.

A hard pull can drop down your score by some points. This is when banks, credit bureaus, employers and the big pop-pops of finance runs the check.

This "hard inquiry" is something you should be worried of.

So let’s get ready to tackle this fiend called credit inquiry.

What happens during a soft inquiry

Let's get one thing straight; a soft inquiry can by no means hurt your credit score.

Suppose you want to calculate your own credit score for personal satisfaction, you will then be making a soft pull on your report.

If a company or a creditor with whom you already do a business, check your credit report for any kind of work related verification, they make a soft pull with or without your permission.

It's like someone just checking out the ‘a-la-carte’ before taking a seat at a restaurant.

You need not worry about soft inquiries. They keep happening every now and then. All of them should be under a header like ‘Inquiries made that did not affect your credit score’ or something similar on your credit report.

For example, sometimes you receive Emails regarding pre-approved credit cards. These offers are sent to you only after the lender or the company finds you creditworthy. They must have therefore ran through your credit report and did a soft pull in the process.

What you should take care of is hard inquiry instead.

What happens during a hard inquiry

This takes place when you apply for a loan or open a new credit account.

The company will straight away check your credit report and would evaluate a score based on your recent activities in the new credit section.

Any kind of hard inquiry falls under the New Credit section of your credit score.

FICO gives an overall 10% for ‘new credit’ out of the total score.

How a hard inquiry affects your credit score is never revealed, but a normal prediction could be, it takes hold of the credit utilization ratio when a new credit is issued.

A hard inquiry should never be done without your complete permission. If you find any record of unauthorised hard pulls on your credit report, don’t be late to bring it under the notice of credit bureaus.

A hard inquiry done, stays on your report for a significantly long time, say around 2 years.

The main reason for a hard inquiry is, when you apply for any new credit, you unknowingly declare yourself as a potentially riskier borrower.

Now this declaration is something you can't avoid. So your application will only be approved if the credit bureaus got enough reason to trust your creditworthiness.

Due to so many undergoing processes of hard inquiry, it temporarily drops down a couple of points.

No matter whatever you do while applying for a credit, you can never evade a hard inquiry.

But the trick is whether you allow one inquiry or multiples of them.

Multiple hard inquiries over a long time span will definitely hurt your credit score.

Ways to avoid hard inquiries:

  1. Brainstorm before you apply for any new credit. Think twice if you really need that credit or not.
  2. Do your rate shopping for any one form of credit in a short span of time. Numerous hard pulls associated to any one form of credit, if done within 14-45 days shall be considered as one.
  3. Check your credit report from time to time for any unauthorized hard inquiry.

Credits that pull hard:

  1. Mortgage loans
  2. Auto loans
  3. New credit card
  4. Increase in credit limit
  5. Refinancing
  6. Student loan

There are times when chances of both hard and soft inquiry are equal. So you must have a brief talk with your lender before you apply for any new line of credit.

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