Credit Reporting – What’s the Difference Between Soft and Hard Credit Inquiries

By
Megan Wells
  • Credit
  • 3 minute read

Credit score is perhaps the largest influencer of a loan approval or rejection. Not just that, it also influences the cost of borrowing, how much an individual can borrow, and how flexible the loan terms are.

Sourced from: www.financialexpress.com

Many factors are involved in computing an individual’s credit score. While repayment histories and Credit Utilization Ratios form the largest pieces of the pie, the total outstanding credit balance, number of credit accounts, and bureau inquiries are significant parts as well.

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In this article, we highlight the difference between the two types of credit bureau inquiries and how they could impact your credit score.

Soft Inquiries vs Hard Inquiries

A soft inquiry is an inquiry that isn’t registered on your credit report and isn’t detrimental to your credit health.  Soft inquiries are typically run by lenders on existing customers to see if you qualify for certain credit products or offers. For instance, a bank might use a “Soft Pull” to see if your credit limit can be increased or if you qualify for select offers based on your current credit standing.  The volume and frequency of these inquiries are not shared with lenders.

A hard inquiry, on the other hand, gets registered on your credit report. Lenders go-in for a “Hard Pull” when they want to evaluate your credit report to make a formal lending decision. Hard pulls happen when a consumer applies for personal loans, credit cards, home loans, car loans or property loans.   Hard inquiries, unlike soft inquiries, can be viewed by you in your credit report and don’t disappear with time.

According to Financial Express, “the fundamental problem with multiple hard inquiries is that they influence lenders to form a negative impression about your credit behavior.”

The perception of too many hard inquiries over a short time period is a consumers reality.  You should realize they showcase you as a credit-hungry customer with a consequently high risk-quotient.  Most lenders choose to reject, or at best offer a super-high rate of interest – either way, clearly unfavorable to the customer.

In order to avoid the fallouts of multiple hard pull inquiries, it is recommended that you look at the lender’s terms and eligibility criteria, and avoid applying with too many lenders simultaneously with a view to get approved by at least one lender.

Check your credit score with a free report today.
Visit our friends at Credit Sesame