The Difference Between Hard and Soft Credit Checks
Every time a financial institution checks your credit, it is logged in your credit report. Too many credit inquiries could damage your score. Some credit inquiries can be harmless. But how do we know the difference? Why are there different credit checks anyway?
When you apply for credit (whether that be for an equipment lease, loan, or a new business credit card), the lender will look into your credit history to make sure you are trustworthy. They won’t let you borrow money if you don’t borrow, repay, and spend carefully!
Your credit history will show what type of inquiry the lender made when assessing your credit. This is usually shown through a hard or soft credit “pull” – or credit check.
What is a hard pull?
If the inquiry is related to borrowing money, this constitutes as a hard pull. If you are applying for a loan, a credit card, or a mortgage, the lender or financial institution will do a hard credit check. Hard pulls can stay on your credit report for two years.
Sometimes, this can lower your score if your credit is continually checked this way. It may not be wise to apply for multiple credits and get approved for a mortgage within the same month. Fear not – it’s important to note that one hard pull will most likely not affect whether you are approved for that credit card or mortgage.
What is a soft pull?
There are many reasons to access your credit score or history – you may be looking at your own credit report! Your potential employer may be accessing your credit report as part of a background check. This constitutes as a soft credit check.
Lucky for you, soft pulls do not affect your credit score. Depending on the credit bureau, they may also not show up on your credit report. If you do not give a lender or bank permission to check your credit, it will most likely be classified as a soft pull.
Examples of Hard Pull vs. Soft Pull
- Leasing a new vehicle
- Credit card application
- Student loans
- Leasing a new apartment/condo
- Checking your personal/business score
- Background check for employment
- “Pre-qualified” offers from credit card companies
Now that you know the difference between hard and soft credit checks, you can use this knowledge to make more informed decisions and understand when it will and will not effect your (or your customers’) credit score.