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10.5.2023 / Financial Education

A Guide to Hard vs. Soft Credit Checks

Credit is a major part of everyday life, especially when you are making significant financial decisions. The state of your credit score plays an important role when you apply for a loan to purchase a car, house, appliance, or any other significant expense.

Not knowing exactly what goes into maintaining or improving your credit score can be an unpleasant surprise when you try to purchase your first home.

It’s common for banks, retail companies, credit card companies, employers, and landlords to run a credit check on potential customers/employees. A credit check is categorized as either a soft or hard inquiry, with significant differences between the two.

Soft Credit Checks

A soft credit check provides limited information and is usually used in promotional offers or for pre-approval. You can expect a soft credit pull from insurance companies, credit card companies, and potential employers. Whether or not the employer can use a credit check as part of their pre-employment process depends on the state you live in.

It's also worth noting that you can pull a soft credit check on yourself. This is a great way to have a big picture of your expenses, payables, and recurring issues to get your finances in order. It also lets you see entries you don’t recognize or seem off. According to the Federal Trade Commission, it is important to routinely check for accuracy, as one in five people usually have an error on one of their credit reports. In addition, unfamiliar hard inquiries could be a sign of fraud or identity theft.

Hard Credit Checks

Hard credit checks are a comprehensive breakdown of your payment history, lines of credit, loans, collections activity, previous hard credit checks, and potentially open applications for credit. Because of its nature, hard pulls impact your credit score and are done by lenders, credit card companies, and landlords. Even if you’re planning to rent a house or apartment, many landlords will do a hard credit check to determine your eligibility for a lease.

If you’re trying to get a mortgage or an auto loan, you can expect a hard credit check to see if you have a history of paying your bills on time. However, it is just a mortgage myth that a perfect credit score is required to be approved.

The Differences Between Soft and Hard Credit Checks

There’s more to credit checks than just a financial entity checking your history. You need to understand how it affects your score, how often it can be done, and how long it can affect your credit score.

How They Affect Your Credit Score

A hard credit check will cause your credit score to decrease temporarily, usually by five points. Depending on your overall credit score, this could be significant enough that you’ll want to be mindful before approving a hard inquiry. For instance, spread out credit card applications so there are not too many hard credit checks in a short period.

On the other hand, soft credit checks have no impact on your score.

What Stays on Your Report

Soft credit checks stay on your credit reports for 12 to 24 months and are visible only to you. Hard credit checks are visible to everyone who does a hard pull and stay on your record for up to two years.

What Permissions Are Needed

Because of the impact on your score, a hard credit check needs authorization before running. Meanwhile, a soft credit check doesn't require your consent and can occur without your knowledge. Even if a soft pull is done without your knowledge, you can still see a record of it on your credit report.

How Frequently You Can Pull Credit

You can pull a soft credit check as often as you like, as there is no limit to the number or frequency.

Hard credit checks should be limited as they impact your score, and too many in a short span of time may make you appear high risk. Too many hard credit checks in a short period could significantly lower your credit score and affect the interest rate extended to you by a financial institution.

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