What Are Hard And Soft Inquiries?
By now you know that your credit score is the most important number in your life. However, you might not know all there is to know about credit inquiries. You know that some of them might drop your score a bit, others don’t and some are unknown. In fact, you might not even realize that some companies are running a credit check on you when you are working on doing business with them (say what?). Credit scores and inquiries are sometimes very complicated to understand, and can leave you feeling bit out of sorts, so we thought we might try to ease your stress and explain them to you the best we can.
Hard Inquiries
A hard inquiry is when a lender pulls your credit report to view it prior to making a financial decision based on your credit score. This happens when you apply for major financing such as a personal loan, car loan, mortgage or a credit card. What’s crazy is that this kind of inquiry can lower your score by as much as 5 points or as little as 1 point, and that hit can stick around for up to two years. You just never know what the impact will be, which is very frustrating as a consumer.
Soft Inquiries
Soft credit inquiries have no effect on your credit score, but they can show up on your credit report. This kind of inquiry is usually one that has nothing to do with financing and everything to do with simply checking your score. Examples of this is when you pull your own credit report, when a potential employer pulls it prior to offering you a new job, or even when you are working on getting a pre-approval for a mortgage. In short, soft inquiries are related to pre-qualifying you for credit, but not necessarily extending credit to you.
Did You Even Know These are Inquiries?
Sometimes you just have to ask if a company is going to pull a hard inquiry or a soft one. For example, your cable and Internet provider, cell phone service provider, and car rental companies can all do credit checks on you. I always ask them if it will be a soft or hard inquiry in advance, and if it’s a hard inquiry you can sometimes avoid it by putting down a deposit. While I don’t recommend this to everyone, if you think that you’ll be shopping for a mortgage or car loan in the near future, it’s probably best to avoid that hard credit inquiry with the small refundable deposit.
The best way to handle any credit situation is to do all your shopping for the same loan in the same two week period. For example, if you are looking for a great mortgage, go ahead and stick to finding it before two weeks are up to avoid multiple hits to your credit, and to show your creditors that you’re clearly just looking for the best rates available.
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