Hard vs. soft credit checks
If a person or business asks your permission to conduct a credit pull, find out if it will be a hard credit inquiry or a soft credit inquiry before agreeing. Here's why: A hard credit pull has an impact on your credit score, while a soft credit pull does not.
Whether you're applying for a credit card offer, an auto loan, or meeting with a prospective employer, you get to decide if you want to have your credit score checked. Once you understand the difference between a hard vs. soft credit check, you'll be in a better position to decide what's in your best interest.
What is a hard credit check?
A hard credit check is when a creditor does a deep dive into your credit history. This happens when you apply for something requiring a decision, such as a loan or credit card.
Each time a hard pull is conducted, there's a ding to your credit score. The good news is these dings aren't very significant. According to Experian, one of the three major credit bureaus (along with TransUnion and Equifax), a FICO® Score usually drops five points or less when a hard credit check is conducted. These hard checks stay on your report for two years.
Many events generate hard credit checks. For example, a hard credit pull is conducted when you:
Avoiding multiple hard credit checks
Each time a hard credit check is pulled, a notation is added to your credit report. A creditor may get nervous if it sees multiple recent credit inquiries on your credit report.
One way to avoid multiple credit inquiries is to apply for multiple loans (of the same type) within a short period of time. The credit reporting agencies know that you're probably going to shop around for the best loan, so they count multiple credit inquiries for the same type of loan as one inquiry -- provided they are conducted within a given period of time.
The time varies by the credit scoring model but ranges from 14-45 days. If you plan to shop around for the best loan, play it safe by having all hard credit checks run within two weeks.
An example of a hard credit check: Let's say you want a new rewards credit card and learn that your credit union offers a card with nice perks. You fill out a credit application and tell the card issuer a bit about yourself, including your name, address, where you work, and how much you earn. Those are all crucial factors, but the card issuer really wants a peek behind the curtain. It wants to know the details of your financial history. So it conducts what's known as a "hard pull" or "hard credit check." This hard pull allows the credit union to take a deep dive into your credit file by ordering a copy from a credit reporting bureau.
The credit union learns which financial institution first granted you credit, your payment history, and your credit rating. Between your loan application and credit report, the credit union gets an outline of your financial past.
It also gets an idea of how well you've managed credit by pulling either a VantageScore or FICO® Score. While FICO is the most commonly used credit scoring model, both are three-digit numbers designed to provide a snapshot of your financial behavior. The higher the three-digit number, the better your financial reputation.