What are Hard and Soft Credit Pulls?

What are the key differences between a Hard Credit Pull and a Soft Credit Pull

Wednesday Feb 10, 2021

Whenever a lending agency or a creditor sends a request to a credit bureau to look at a prospective client’s credit report, then that inquiry might end up becoming part of the client’s credit history. Broadly defined, there are two types of inquiries—hard and soft pulls.

What is a Hard Credit Pull?

A hard pull may be used to determine if the prospective customer is deemed an acceptable risk and, therefore, worthy of being given a loan or credit card. Unfortunately, such a pull has the drawback of lowering your score. This holds particularly true if you have multiple hard pulls within a brief span of time.

A whole bunch of hard pulls all at once are a signal that you have applied in many places simultaneously and are in dire need of funds. The prospective lender will take it as a sign of poor money management. Once a hard inquiry or pull has been conducted, it will not go anywhere, and it will remain on your report for at least a couple of years.

In other words, if you apply for credit for any reason, including a home mortgage or a credit card or, for that matter, even an auto loan, the lending institution will thoroughly check your credit report. They will also check your credit score from either one or (in case they are not satisfied) multiple credit bureaus. Since all of these inquiries are also tied to an actual credit application, it is the norm to consider them hard questions, which will eventually affect your credit scores to a great extent.

Who has the power to conduct a Hard Pull?

It is not possible for random people to order a hard pull. In fact, only legitimate requests will be entertained by the major credit bureaus.

Lending Agencies and Banks

A hard pull may be ordered for the express purpose of helping the lenders make an informed financial decision with regard to disbursing you a loan or even a line of credit. This is why a bank or any other financial institution will opt for a hard pull on your credit. After all, the lenders also want to make sure that you can actually pay back the loan that you want from them. This holds true for all kinds of loans ranging from home mortgages to private student loans.

Your Landlord

Your landlords can also run both hard and soft credit pulls. As a general rule, once you seek an apartment or house for rent, your prospective landlord will also include a permission form for conducting a credit check on your past finances. If you disagree, they will have the right to refuse to rent their property to you.

Sometimes landlords also go through third-party background and screening companies to conduct the hard pull, based on your social security number (SSN).

Here, it is pertinent to note that credit scoring models sometimes consider the possibility that you are merely shopping for the best loan product available. They might consider multiple inquiries and applications as a single inquiry and/or application, and it would not have much impact on your credit score.

Inquiries are, however, not the only factors used in calculating your overall credit scores. Other factors, including your credit utilization ratio, payment history, the nature and scope of credit, will have a far more substantial impact when it comes to gauging your credit score. Rest assured that hard inquiries are rarely ever the main reason behind credit denial.

How long will such inquiries stay on your Credit Report?

As a general rule, all hard inquiries typically remain on your credit report for at least two years. However, their overall impact on your credit score will lessen over time. Even if you have multiple similar inquiries in a span of just a few months, it is still unlikely that a lending agency will assign them too much weightage. Here it is pertinent to note that your overall history of on-time payments, as well as a low credit utilization ratio, will be much more critical determinants to most credit scoring models.

What is a Soft Credit Pull?

A soft pull occurs whenever you check your credit report, or for that matter, someone else (such as a potential employer, for instance) does the same. Such a review of your credit report is also known as a soft inquiry.

Who can conduct a Soft Pull?

This kind of ‘soft pull’ may also occur whenever a business, such as insurance companies, lenders, or credit card companies, conduct a general background check of your credit rating. They will usually do this in order to pre-approve you for any offers.

Here, it is pertinent to note that such soft inquiries are not linked to any specific application for new credit. In fact, they have no effect whatsoever on your credit score. This is because such inquiries are never considered an essential factor in any credit scoring model.

Think of it as a relatively straightforward review of your credit. Since there is no in-depth check involved, so your credit rating is never affected by such an inquiry.

Basically, a soft pull will only show what you yourself will see if you decide to look at your own credit report. It might include records of your lines of credit, your cumulative payment history, your loan history, and any collections accounts to your name.

The Bottom Line

Always remember that your overall credit score will undoubtedly play a significant role in your long-term financial health. If you have decided to apply for a loan, it is imperative that you take the time and fiscal discipline to build your credit scores. After all, the stronger your credit score, the better will be your chances of being approved for the various different financial products currently available in the market.

Ultimately your higher credit scores are a surefire means of helping you get the best possible terms and rates for all your financial needs.

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