What is the Difference Between a Soft and Hard Credit Inquiry?

Written by Christina Miller
Edited by Carly Simon-Gersuk

The Difference Between a Soft and Hard Credit Inquiry

Fun fact: Did you know that the credit score wasn’t even invented until…wait for it…1989. It doesn’t seem like that long ago for a number that now, for many, constitutes the difference between you going to college, getting a house, or affording a car – or spending your days in your parent’s basement living off ramen.

It also seems like just about everything affects your credit score So it stands to reason that when someone says they are going to “run your credit,” many want to go running in the other direction. But don’t. There are different sorts of credit inquiries. Some of which affect your score, and some that don’t. We’re here to show you the difference.

Here is the difference between a “hard” and “soft” credit inquiry (or credit pull as some call it):

What is a hard credit inquiry?

When you apply for loan (i.e. credit cards, auto loans, mortgages, etc.) the institution lending you the money pulls your credit report with your approval. When they do so, they are looking to determine a few things:

  • Whether or not you CAN pay them back.
  • Whether or not you WILL pay them back.
  • If you have a history of paying others back.

Basically, they want to determine the sort of a risk you are to them if they lend you money. If they decide to lend to you, they use the above information to determine how good your interest rate will be.

The issue is, in order to get all that information, the lender has to do what’s called a hard credit inquiry. This “hard inquiry” is subsequently reported and indicates that you have applied for credit, which will affect your score.

“Wait a second. So every time I apply for a loan, it affects my credit score? WHY?”

Credit-scoring models generally look at how recently, and often, you’ve applied for credit. According to lenders, it’s because a large number of inquiries means you have a much greater chance of declaring bankruptcy. They don’t just think that – the stats show it. According to FICO, people with six inquiries or more in under two years can be up to eight times more likely to declare bankruptcy than people with no inquiries on their report.

That doesn’t necessarily mean getting a loan will have a negative effect on your score. If you, however, apply for credit too often, or too much in a short period of time, it can.

The good news is, these inquiries only remain on your credit report for two years – but typically won’t affect your report for more than a year.

So then what is a soft credit inquiry?

Basically – a soft inquiry is not the same thing as a hard inquiry at all. The biggest (and most important) difference? Soft inquiries do NOT adversely affect your credit score, so there is no risk in having one done.

You actually have soft inquiries (or a “soft pull”) done on your credit all the time without actually even knowing about it. For example, if you receive a credit card offer in the mail that you have been “pre-approved” for, it’s because the company sending it did soft pull on your credit and determined you were a good fit. That’s also true for any sort of pre-approval offer – including the ones offered by MoveCU.com.

It’s not just lenders either. Employers also often perform a soft inquiry during background checks, since a good credit score may indicate that you are a responsible person.

Getting a credit check? Make sure you know what kind of inquiry they are doing.

Getting a rental car, having internet installed, or applying to rent an apartment means they are probably going to pull your credit. The sort of credit report they pull depends on the credit check service they use. While you do have to agree to let them do a hard credit pull, but sometimes you may not realize they asked in the paperwork shuffle - so make sure you know before they do, and that you are okay with it.

What credit score model do lenders use?

Lenders often use FICO, while the score seen in soft inquiries is usually VantageScore or a FICO score that is not for business purposes.

Although lenders have historically favored FICO, the VantageScore is becoming more frequently adopted. According to VantageScore ,seven of the top 10 financial institutions, eight of the top 10 credit card issuers and six of the top 10 auto lenders use VantageScore, although the company did not state the names of these institutions.

While both scores serve the same purpose (to help lenders determine the creditworthiness of a potential borrower) there are some significant differences in the scoring models.

VantageScore 4.0 is determined based on 6 different factors: payment history (41%), utilization (20%), credit history/age (20%), new credit (11%), balances (6%), and available credit (2%).

FICO takes into account 5 different factors: payment history (35%), amount of debt (30%), credit history/age (15%), types of credit (10%), and credit inquiries (10%).

Want to explore the world of credit union lending?

MoveCU can help you find and compare credit union rates personalized to you. There is no risk to your credit if you want to see what rates you qualify for! Get started.

MoveCU is the nation’s first credit union loan marketplace. Now users can instantly find, compare, apply for, and get pre-approval online in minutes on loans from credit unions around the U.S. Using their intuitive industry-leading technology, MoveCU is giving America’s smallest financial institutions a bigger voice and breathing new life into the credit union movement. For more information, visit our homepage.