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Hard and Soft Credit Inquiries

October 10, 2016 — 3 min read

The Difference Between Hard and Soft Credit Inquiries

If you were doing something to hurt your credit score, wouldn't you want to know about it? Many buyers are unaware of the difference between hard and soft credit inquiries and how it can affect them. They may be jeopardizing their credit score without even knowing what they've done. But understanding the differences between the two types of credit checks could help your clients make wiser decisions on future credit applications and have a better credit score overall.

Hard and soft credit inquiries are when a third party person, business or entity requests to view your credit.

What is a soft inquiry?

Soft credit inquiries happen when a person who is not a potential lender, looks at someone's credit score. This may be when a client checks their own credit score. Or by an employer for an employee background check, and even by businesses in order to offer your client goods and services (such as promotional credit card offers). These credit checks can be done without permission and are not customer driven so they will not affect the credit score.

Examples of a soft inquiry: Getting pre-approved credit card or loan offers, checking own credit score, getting a background check from a potential employer.

What is a hard inquiry?

A hard credit inquiry is when a financial institution such as a lender or credit card company checks a person's credit while deciding whether or not to extend an offer of credit. They most often take place when a person is making a large financial decision such as applying for a mortgage, loan or credit card. Typically, a person must authorize the third party to do this so they should be aware of the hard inquiry on their credit report.

This is the type of inquiry your clients will need to look out for. Hard inquiries can lower a credit score and can remain on the credit report for two years. But with time, the damage to the credit score decreases or disappears altogether.

Examples of a hard inquiry: Applying for a mortgage, a credit card, an auto loan, student loan, business loan, etc.

Often, if your client is shopping for a good deal on a loan, advise them to get all of their credit inquiries within a 45-day span. Credit bureaus will often consider these hard inquiries in a short window as a single inquiry because they understand that people are searching for the best price and rate rather than for different loans.

Remind your clients to stay away from hard credit inquiries while they are in the homebuying process. A drop in their credit score could provide complications in getting them a loan. Suggest they follow the Do's and Don'ts of homebuying to help them make good choices when in the process of buying a home. We are always here to help and would love to help answer you or your clients' questions about credit and mortgages. Don't hesitate to contact PRM today!

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