What is a soft credit check? Soft pull vs hard pull

When applying for a business loan or credit card, you may encounter two types of credit checks: soft pulls and hard pulls. Understanding the difference between the two is crucial as they can impact your credit score. 

In this article, we will delve into the concept of soft credit check, and explore how they differ from hard pulls and their implications for your financial well-being.

What is a soft credit check (soft inquiry)?

What is a soft pull on credit?

A soft credit check, also known as a soft inquiry, is a type of credit check that does not affect your credit score. It is typically performed by lenders, creditors, or potential employers to assess your creditworthiness without your consent. 

Soft credit checks are often used for pre-approval offers, marketing purposes, or employment background checks.

Unlike hard credit checks, soft inquiries do not leave a footprint on your credit report and are not visible to other lenders or creditors. This means that they have no impact on your credit score and do not affect your ability to obtain credit in the future.

How does a soft credit check work?

When a lender or creditor performs a soft credit check, they access your credit report from one or more credit bureaus, such as Experian, Equifax, or TransUnion. The credit bureau provides the lender with a snapshot of your credit history, including information such as your payment history, outstanding debts, and credit utilization ratio.

However, unlike a hard credit check, a soft credit check does not involve pulling your full credit report or calculating your credit score. Instead, the lender or creditor simply reviews the basic information on your credit report to get a general idea of your creditworthiness.

Soft credit checks are often used for the following purposes:

• Pre-approval offers: Lenders may use soft credit checks to determine if you pre-qualify for a loan or credit card. This allows you to see what loan or credit card offers you may be eligible for without affecting your credit score.
• Marketing purposes: Credit card companies and other lenders may use soft credit checks to target you with personalized marketing offers.
• Employment background checks: Potential employers may use soft credit checks as part of their background check process to assess your financial responsibility.
  
  

What does a soft credit check show?

A soft credit check shows basic information from your credit report, such as:

• Payment history
• Outstanding debts
• Credit utilization ratio

However, unlike a hard credit check, a soft credit check does not involve pulling your full credit report or calculating your credit score.

Benefits of a soft credit pull

Soft credit pulls, also known as soft inquiries, offer a range of advantages for both consumers and businesses. Unlike hard credit checks, which can temporarily lower your credit score, soft pulls have no impact on your creditworthiness. In this section, we will explore the benefits of soft credit pulls, including:

1. No impact on your credit score:

• Unlike hard inquiries, soft credit pulls leave no trace on your credit report. This means you can check your creditworthiness as often as you like without worrying about lowering your credit score.
• This is particularly beneficial when you're rate shopping for loans or credit cards, as multiple hard inquiries within a short period can negatively impact your score.

2. Quick and easy process:

• Soft credit checks are typically fast and straightforward. They often occur behind the scenes without you even realizing it.
• They don't require your explicit permission or involve lengthy paperwork, making them convenient for both you and the inquiring party.

3. Pre-approval for financial products:

• Lenders often use soft pulls to pre-screen applicants and extend pre-approved offers for loans, credit cards, or other financial products.
• This allows you to see what you might qualify for without committing to a full application or impacting your credit score.
• It can save you time and effort by narrowing down your options to those most likely to approve you.
  
  

4. Personalized marketing offers:

• Financial institutions may use soft pulls to tailor their marketing efforts and send you targeted offers based on your credit profile.
• While some may find this intrusive, it can also be beneficial as you're more likely to receive offers that align with your financial needs and creditworthiness.

5. Employment background checks:

• Some employers include soft credit checks as part of their pre-employment screening process.
• This is usually done to assess your financial responsibility and trustworthiness, particularly for positions that involve handling money or sensitive information.
• While this practice is regulated by law, it's essential to be aware that your credit history could be a factor in employment decisions.
  
  

6. Insurance underwriting:

• Insurance companies may use soft pulls to evaluate your credit-based insurance score, which can be a factor in determining your premium rates.
• While not all states allow this practice, it's becoming increasingly common as insurers seek to assess risk and price policies accordingly.
  
  

7. Account monitoring and fraud detection:

• Financial institutions may use soft pulls to monitor your existing accounts for suspicious activity or potential fraud.
• This can help protect you from identity theft and unauthorized transactions, providing an added layer of security for your finances.
  
  

8. Self-monitoring and financial awareness:

• You can initiate soft pulls on your own credit report to track your credit health, monitor for errors, and stay informed about your financial standing.
• This proactive approach can help you identify areas for improvement, catch potential issues early on, and make informed financial decisions.
  
  

Does a soft credit check affect your credit score?

Does a soft pull affect credit? Let’s take a look.

No, a soft credit check does not affect your credit score. Soft inquiries are typically done by lenders and creditors to pre-approve you for an offer or to check your credit history for their own marketing purposes. 

They are also performed when you check your own credit report or when a potential employer checks your credit as part of a background check. Unlike hard inquiries, soft inquiries are not visible to other lenders and have no impact on your creditworthiness.

Soft pull vs hard pull: what’s the difference between a hard inquiry and a soft inquiry?

When applying for credit, such as a loan or credit card, you may encounter two types of credit checks: soft pulls and hard pulls. It's important to understand the difference between the two, as they can have different implications for your credit score.

Soft pull (soft inquiry)

• A soft pull, also known as a soft inquiry, is a type of credit check that does not affect your credit score.
• It is typically performed by lenders, creditors, or potential employers to assess your creditworthiness without your consent.
• Soft pulls are often used for pre-approval offers, marketing purposes, or employment background checks.
• They do not leave a footprint on your credit report and are not visible to other lenders or creditors.
  

Hard pull (hard inquiry)

• A hard pull, also known as a hard inquiry, is a type of credit check that can affect your credit score.
• It is typically performed when you apply for a loan, credit card, or other type of credit.
• Hard pulls involve pulling your full credit report and calculating your credit score.
• They can lower your credit score by a few points, especially if you have multiple hard pulls in a short period.

How to reduce hard credit inquiries: 5 practical tips

Here are five practical tips to help you reduce the impact of hard credit inquiries on your credit score:

1. Limit credit applications: Avoid applying for multiple loans or credit cards in a short period of time. Each application results in a hard inquiry, which can cumulatively affect your credit score. Only apply for credit when necessary.
2. Check pre-approval offers: Before applying for a new credit product, check for pre-approval offers using soft inquiries. This way, you can gauge your chances of acceptance without impacting your credit score.
3. Be selective with credit types: When considering new credit, be aware of the types of credit that may result in hard inquiries. For example, inquire whether applying for a bank account or a cellphone contract will involve a hard credit pull. Make informed decisions to minimize hard inquiries.
4. Maintain good credit health: Focus on the other aspects of your credit profile. Make on-time payments, reduce credit card balances, and avoid new debts. A strong credit history can mitigate the negative impact of a hard inquiry.
5. Monitor your credit report: Regularly check your credit report for any unauthorized or erroneous hard inquiries. If you notice any discrepancies, dispute them promptly with the credit bureaus to ensure your report reflects accurate information.

By following these tips, you can effectively manage and reduce the impact of hard credit inquiries on your credit score.

Key takeaways

Understanding the nuances between soft and hard credit checks is crucial for maintaining a healthy credit profile. Here are some important points to remember:

1. Nature of inquiries: Soft credit checks do not impact your credit score, while hard inquiries can lead to a temporary decrease in your score. It's essential to differentiate between the two when managing your credit.
2. Pre-approval advantage: Utilizing soft credit checks allows you to explore pre-approval options without the worry of affecting your credit score. This is particularly useful when considering new loans or credit cards.
3. Limit hard inquiries: To safeguard your credit score, limit the number of hard inquiries by being selective about credit applications. Only apply for credit when you genuinely need it, and choose the best options available.
4. Credit health maintenance: Prioritize good financial habits. Keeping your credit utilization low, making timely payments, and reviewing your credit report regularly can help maintain a strong credit score, even if occasional hard inquiries occur.
5. Monitoring and dispute: Regularly checking your credit report helps you identify any unauthorized hard inquiries or errors. Promptly disputing inaccuracies can protect your credit standing over time.

FAQs

What kind of credit inquiry has no effect on your credit score?

A soft credit inquiry, also known as a soft pull, has no effect on your credit score. It is typically performed by lenders, creditors, or potential employers to assess your creditworthiness without your consent.

Does a hard inquiry impact your credit score?

Yes, a hard inquiry can impact your credit score by lowering it by a few points, especially if you have multiple hard pulls in a short period.

When do hard inquiries fall off credit report?

Hard inquiries typically stay on a credit report for two years, but their impact on your credit score diminishes over time.

How much does a hard credit check affect your credit?

A hard credit check can lower your credit score by a few points, especially if you have multiple hard pulls in a short period. However, the impact is typically small and temporary, and your score will recover over time.

Why do hard credit checks affect your credit score?

Hard credit checks affect your credit score because they indicate to lenders that you are actively seeking new credit, which can be a sign of financial instability or over-extension. This can make lenders more cautious about extending you credit in the future.

How do multiple hard inquiries affect your credit score?

Multiple hard inquiries in a short period of time can lower your credit score by a few points, as lenders may view this as a sign that you are applying for too much credit or are in financial trouble.