BY KEVIN OUTLAW
Lenders use your credit score to determine whether you are eligible for a loan and to decide what terms they are prepared to offer. Credit bureaus keep track of when companies check your score, regardless of the outcome, and checks designated as “hard inquiries” may lower your score.
Understanding what constitutes a hard check vs. a soft check makes it easier to plan how you intend to apply for new credit lines, thereby minimizing the risk of harming your credit score.
SOFT CREDIT CHECKS ARE LISTED ON YOUR CREDIT REPORT
A soft credit check, otherwise known as a soft inquiry or soft pull, is any kind of credit report check that doesn’t affect your credit score. Soft inquiries are background checks rather than checks occurring as a result of new loan applications; in some cases they happen without your knowledge or consent.
Common soft inquiries include:
—When you check your own credit report.
—When a potential employer checks your credit history to determine your reliability and financial status.
—When a financial institute you patronize checks your credit.
—When credit card issuers check your credit to send you a preapproved offer.
You can see all of the soft inquiries on your credit report, which lists each check along with the name of the organization that made the check.
SOFT CREDIT INQUIRIES VS. HARD CREDIT INQUIRIES
Unlike soft inquiries, hard inquiries may have an impact on your credit score. Prospective lenders make hard checks when they are making a lending decision, with common examples including:
—Applying for a new credit card.
—Taking out a loan for a new car.
—Applying for a mortgage.
Hard inquiries stay on your credit report for two years, so you should always think carefully before making any kind of loan application as it can lower your credit score.
BE SMART ABOUT APPLYING FOR LOANS
A good credit score is an essential part of getting approval for a new line of credit, and it also improves your chances of getting the best rates. It’s important to know what kind of activity has the potential to lower your score.
Many companies check your credit history, but only hard checks made to verify your eligibility for a new line of credit have a direct impact on your credit score. To maintain your credit score, apply only for loans when you really need them. If you are shopping for the best rates, make all of your applications within a short time frame.