What Are Hard and Soft Credit Pulls?
When you are trying to build or maintain your credit, it’s important to understand the difference between hard credit pulls and soft ones. It turns out that one type of pull will negatively affect your credit score for up to two years, while the other one won’t affect it at all.
Let’s talk about the differences between the two types of credit pulls and when you should – and shouldn’t – consider using them.
What Is a Hard Credit Pull?
Whenever you fill out an application for credit, it results in a hard credit pull. For instance, how many times have you been asked if you want to apply for a store credit card as you’re paying for your purchases in a store? (Even Amazon now asks this as you’re checking out online). If you say yes, the store will perform a hard pull to determine your creditworthiness.
Hard credit pulls are performed every time you apply for a credit card, a new car loan, a mortgage, a student loan, or any other type of bank loan. In some cases, asking for a credit line increase from your credit card issuer may result in a hard pull. The hard pull allows the potential lender to view your official credit report, which is a very in-depth look.
How Do Hard Credit Pulls Affect Credit Scores?
Potential creditors look at your credit history to determine if you are a good candidate for repayment. If they see a lot of hard credit pulls in a short period of time, they may deduce that you are in financial distress and are trying to gain access to credit to help relieve it.
Different credit reporting agencies assign varying point deductions for hard credit pulls. For example, Credit Karma recommends keeping hard pulls below two and says that more than five hard pulls will put you in the “red zone.” On the other hand, only 10% of your FICO score is made up of credit inquiries, and TransUnion, one of the three credit reporting agencies, lists the activity as “less influential.”
If you’re trying to build or repair your credit, even those seemingly insignificant points can make a big difference. But if you have good credit and are, say, shopping for a mortgage, it may make sense to ask more than one bank to pull your credit, so you can make an informed decision about which lender you will use.
Keep in mind that a hard credit pull causes a slight decrease in your credit score every time one is pulled, even though it’s only temporary. But each pull also stays on your credit report for up to two years.
What Is a Soft Credit Pull?
A soft credit pull happens when your credit is checked, but the inquiry is not associated with a credit application. For instance, if you apply for a new job and the employer checks your credit, it is considered a soft pull.
Other types of soft credit pulls occur:
- When you check your own credit scores.
- When a potential landlord checks your credit (on rare occasions, a landlord will ask you to agree to a hard pull).
- When you inquire about a pre-qualified credit card offer (many credit card issuers offer these soft pulls to give you insight into your approval odds).
- When you ask an insurance company to give you a quote.
A soft pull only gives an overview of your creditworthiness. For instance, the viewer will see your approximate credit score, but they won’t see who your creditors are or the details of any payments or defaults.
Do Soft Pulls Affect Credit Scores?
Here’s the good news: Soft credit pulls do not affect your credit score in any way. That’s because an official, in-depth credit report is not shared with the person requesting the information.
Soft pulls can be useful for those building or repairing their credit. For instance, if you use a pre-qualification credit card matching tool, you will gain insight into your current credit score. As you watch it rise, it will further motivate you to continue on your financial journey.
Additionally, if you want to increase your credit lines (but not use them) to increase your credit score, you can use a card matching service to find out which cards you qualify for.
Finally, it’s a good habit to consistently check your credit scores. You are allowed to check it once a year with each of the three major credit reporting agencies. (You can stagger the reports so that you check your credit with one of them every four months.) By doing this, you will quickly spot any errors or illegal activity such as identity theft.
You should always think twice about allowing others to check your credit score. If it’s for a good reason such as buying a new car, home, or increasing your lines of credit to improve your credit score, it’s probably worth the temporary hit to your score. But avoid those “in the moment” decisions such as applying for a credit card at the checkout station of your favorite clothing or sporting goods store.
If you want some additional guidance about when is the “right time” to allow others to check your credit score, or you just need help in reestablishing or building your credit, our friendly counselors are happy to help. Reach out to us at American Credit Foundation. Our mission is to help people just like you create financial plans that will ensure a better future.