What is a credit inquiry?

When someone asks to see your credit report, it’s called a credit inquiry or credit check. Credit inquiries are generally either soft or hard, depending on their purpose. In this article, we’ll look at how hard credit inquiries and soft credit inquiries work, the differences between them, and explain how these credit inquiries affect your credit score.

Key takeaways:

• A credit inquiry, also called a credit check, is a request to see your credit report. There are two types of credit inquiries:
  hard credit inquiries, which can lower your credit score temporarily, and
  soft credit inquiries, which don’t affect your credit score.
• Hard credit inquiries usually take place when you apply for new credit. However, there are other ways your credit can be accessed,
  which can result in a soft credit inquiry, such as when you review your own report or when a lender prequalifies you for a firm offer of credit.
• If you ask to view your own credit report, it’s considered a soft credit inquiry.

Who might ask to see your credit report?

A credit inquiry is a request to see your credit report. There are two types of credit inquiries: hard inquiries, which can lower your credit score temporarily, and soft inquiries, which don’t affect your credit score at all. Both types allow people to see your credit report.

What are credit reports and credit scores?

Your credit report shows information about your credit activity, including your credit accounts, their balances, and your payment history.

Your credit score is between 300 and 850 that gives businesses an idea of how likely you are to make payments on time. The higher the number, the better your credit score.

Here are some of the businesses that may want to look at your credit report.

• Banks
• Credit card companies
• Lenders
• Property managers
• Employers
• Insurance companies

What is a hard credit inquiry?

A hard credit inquiry (sometimes called a hard check) takes place when a financial institution asks to see your credit report during a credit application. Reviewing your credit history in detail helps financial institutions, property managers, and others determine if you meet their eligibility requirements.

A hard inquiry can temporarily reduce your credit score by a few points. That’s because the FICO® credit scoring model looks at how recently and how frequently you have applied for new credit. If you have too many recent credit applications, it may indicate that you’re short on money and less able to pay back your debts on time. As a result, they can lower your credit score. This is something you should consider when applying for new credit.

Tip

When you apply to rent an apartment or open a bank account, you might receive a hard or soft credit inquiry. When submitting any application with a credit check, ask if it’s a soft or hard inquiry.

When do hard credit inquiries take place?

Now that you know hard credit inquiries occur when you apply for new credit, here are some examples of instances where you should expect to receive a hard inquiry:

You’re applying for a personal loan

When you apply for a personal loan, the lending institution will often conduct a hard credit inquiry to assess your creditworthiness. This involves a thorough review of your credit history and score to determine your likelihood of repaying the loan. The hard credit check may cause a small, temporary drop in your credit score.

You’re applying for a credit card

Similarly, when you apply for a new credit card, the issuer will perform a hard credit inquiry as part of the approval process. They’ll review your credit history to decide whether you qualify for the card. Just like with a personal loan, this hard check may slightly reduce your credit score for a short period.

You’re applying for a mortgage

Your credit score can have a significant impact on whether you get approved for a mortgage. Given the substantial sum generally associated with this type of loan, the lender needs to have a clear understanding of your financial stability and reliability in terms of debt repayment. The lender will conduct a hard credit check to evaluate your ability to repay the mortgage on time and in full.

You want to rent an apartment

If you’re looking to rent an apartment, the landlord may also perform a hard credit check. This can help them determine whether you have a history of paying your bills on time and can afford the monthly rent payments. As with other types of loan applications, this inquiry may cause a temporary decrease in your credit score.

How to remove hard inquiries from your credit report

It’s important to check your credit report regularly so that you can spot and correct any errors in your report. Over 30 percent of credit reports contain at least one error. Errors can bring down your credit score, so if you find one in your credit report, such as an unfamiliar hard inquiry, be sure to file a dispute directly with the credit bureaus to have it corrected. The credit bureaus are required to investigate and remove disputed errors within 30 days.

You can see your credit reports from the three major bureaus for free once a year by making a request at AnnualCreditReport.com. This allows you to view your credit history as it appears with Equifax, Experian, and TransUnion. Some credit card companies and banks may also offer you soft credit checks at no cost.

What is a soft credit inquiry?

A soft credit inquiry, or soft check, is a review of your credit file, including reviews of existing accounts by lenders, prescreening inquiries by prospective lenders, and your requests for your annual credit report.

Soft inquiries appear on your credit report, but they don’t affect your credit score. By understanding the difference between hard and soft credit inquiries, you can better identify actions that can reduce your credit score.

When do soft credit checks take place?

There are many situations where someone might make a soft inquiry to view your credit report. In some cases, you may not even be aware that these credit checks are taking place. Here are a few cases which are typically shown as a soft inquiry.

You want to review your own credit history

It’s helpful to check your credit report regularly, especially before you apply for new credit. By reviewing your credit history, you can determine if you need to take steps to improve your credit score. As mentioned earlier, you can view your credit reports for free once per year from each of the three major credit bureaus: Equifax, Experian, and TransUnion.

A potential employer wants to know more about you

Some employers use soft credit checks to learn more about the people who are applying for jobs with them. Looking at your credit history allows employers to verify your identity and see how responsible you are in handling credit.

If you apply for a new job where you’ll be managing money, your potential employer may ask for permission to view your credit report as part of their background check. Your credit report shows them how well you manage your own finances.

Your current lender wants to monitor your creditworthiness

If you already have a loan or credit card, your current lender may use soft credit checks to keep track of your credit worthiness. Some lenders may raise your interest rate or reduce your credit limit if your credit report shows a negative history.

A financial institution wants to send you a preapproval offer

Financial institutions often use soft credit inquiries to prescreen people who might be interested in their financial services. Then they send offers to the people who qualify. This lets them attract more business from qualified applicants. If you receive a preapproval offer from a company, they likely used a soft credit inquiry to view your credit report beforehand.

You want to find out if you prequalify with a specific lender

If you’re considering taking out a new loan or credit card, it’s generally a good idea to see first if you prequalify with the lender first. Applying for prequalification can usually tell you if you meet a lender’s basic eligibility requirements. If you don’t meet the requirements, you can avoid making a formal application, which would result in a hard credit inquiry.

Oportun: Affordable lending options designed with you in mind

Now that you understand hard and soft credit inquiries, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• And more

Sources:
Consumer Protection Bureau. What’s a credit inquiry?
Consumer Reports. More than a third of volunteers in a Consumer Reports study found errors in their credit reports
Credit Karma. Hard credit inquiry vs soft credit inquiry: What they are and why they matter.
Experian. How long do credit report disputes take?
Experian. Which states restrict the use of credit scores in determining insurance rates?
Equifax. Understanding hard inquiries on your credit report