What’s the Difference Between Hard and Soft Credit Report Inquiries?
Money Girl answers a question about why credit inquiries can damage your credit and which ones hurt the most.
Laura Adams, MBA
Q: In How to Raise Your Credit Score Fast, you say that having many credit inquiries in your credit file can damage your credit. Why is this the case—and do all types of inquiries have a negative effect on my credit score?
A: The reason new credit inquiries are a factor in most credit scoring models is because they indicate a higher level of risk. The more accounts you have and the more debt you owe, the more likely you are to default or have difficulty paying them.
If you attempt to take on multiple credit accounts, it’s a red flag that you may be credit hungry and in financial trouble. It could also indicate that your debt-to-income ratio may be much higher than you say, because your newest debts may not have had enough time to show up yet on your credit report.
However, not all credit inquires are created equal because there are 2 main types: hard and soft inquiries.
Hard credit inquiries can hurt your credit and remain on your credit report for 2 years. They happen when you apply for a new credit account, such as a credit card, car loan, or mortgage.
So the fewer hard inquiries on your credit history, the better. However, the credit bureaus make an exception when you’re rate shopping and apply for multiple credit offers.
For instance, if you apply with 3 different mortgage companies in order to get the lowest rate, the hard inquiries get lumped together as a single inquiry in your credit report. Just make sure that you submit applications as quickly as possible, such as within a 30 to 45 days.
Soft credit inquiries never hurt your credit or affect it in any way. These include pre-approved credit offers that you might receive in the mail or credit checks by companies you’re already doing business with.
Additionally, checking your own credit report or getting your free credit score is a soft inquiry—so never hesitate to check up on your own credit as often as you like!
Other Links You Might Like:
How to Opt Out of Pre-Approved Credit Offers
Best Tips to Improve Your Credit Score
25+ Best Financial and Productivity Tools
6 Simple Tools to Protect Your Privacy and Prevent Identity Theft
Connect with me around the web on Facebook, Twitter, and Google+
Click here to Download 2 Free chapters of Money Girls’ Smart Moves to Grow Rich
Get the Money Girl Book!
Looking for more money advice or a great gift? Pick up a copy (or several!) of Money Girl’s Smart Moves to Grow Rich. It tells you what you really need to know about money without bogging you down with what you don’t. Get the paperback or ebook today!
Blank credit application form image courtesy of Shutterstock.
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.