A hard credit pull vs. a soft credit pull
You may want to think twice about taking out new loans or applying for new credit cards any time you want. Doing so may hurt your credit. Depending on the type of loan, too many credit inquiries can damage your credit and cause your score to take a hit.
To build good credit and manage your debt successfully, it’s important to understand the differences between hard pull and soft pull inquiries. Some credit inquiries can negatively affect your credit score for as long as two years.
What are credit inquiries?
Anytime you apply for a new car loan or rent a new apartment, your credit report may be pulled. These inquiries allow companies and financial institutions to view your credit history and score to determine your creditworthiness. There are two kinds of credit inquiries: hard pulls and soft pulls, both of which have a different impact on your credit score.
What is a hard pull?
A hard credit pull takes place when you authorize it, like when you apply for a car loan, mortgage, or credit card. The financial institution will review your credit report to make their lending decision. A hard pull has the most impact on your credit and can cause your score to decrease over time. And it can stay on your report for up to two years. Therefore, many experts suggest spacing out the number of loans you apply for in a short time span.
Hard inquiries should never occur without your permission. You can see the names of companies who have recently pulled your credit, in the “credit inquiries” section in your credit report.
What is a soft pull?
A soft pull does not require your authorization and the lender is only provided limited information. It won’t show up on your credit report and won’t negatively affect your score. A soft credit inquiry occurs when a company pre-approves you for a credit card or does a background check. A soft pull can be done without your permission, which is why you may receive the “you’ve been pre-approved” offers in the mail from time to time.
Another way that a soft pull occurs is when you view your credit report. That specific credit company will pull your information so you can view the details. The good news is that soft pulls don’t affect your credit in any way, so you don’t have to worry about negative effects
Examples of hard pull vs. soft pull inquiries
A hard pull is prompted by specific financial applications, usually upon your request and your permission. On the other hand, a soft pull can be done without your permission as part of the pre-approval process. Here are some real-life examples of hard pull versus soft pull credit inquiries.
Hard pull examples
- Applying for an auto loan, student loan or business financing
- Applying for a new credit card
- Applying for a mortgage
- Opening a new checking or savings account
- Requesting a loan or credit increase
- Signing a new cell phone contract
Soft pull examples
- Reviewing your credit report
- Background check from your employer
- Being pre-approved for credit card or loan offers
- Verifying your identity
Credit inquiry shopping period
It’s important to note that when you are shopping around for loans within a 14–45-day period, for something like a mortgage, this will usually show as a unique inquiry. Many retailers will see this “shopping period” and combine the same type of accounts into one. So, don’t worry about applying for multiple student loans or shopping around for the best auto loan interest rate, as this will show up on your credit report as one hard inquiry.
Why hard inquiries hurt your credit
Applying for too many loans or credit cards at once can cause your credit score to take a hit. Why? Because taking on too much credit too quickly, can be an indicator of financial problems to financial institutions. It’s best to only apply for credit or loans that give you the highest chance of successful approval.
The goal is to limit the hard pulls on your credit as much as possible, only taking out new loans or credit cards once or twice a year. Consumer data has shown that a lower number of credit inquiries on a credit report may translate into a higher credit score.
How to dispute hard pulls you didn’t approve
Even with the best money management skills, there are times when a hard pull will appear on your credit report without your knowledge. There are a few things you can do to dispute hard inquiries that you didn’t approve.
1. Contact the Creditor
Here are some steps to locate and get in touch with the creditor:
- Locate the creditor listed on the hard inquiry section of your credit report
- Click on the company’s name for contact information like email, mailing address, and phone number
- Reach out to the creditor, either in writing or by phone, stating that you didn’t authorize the hard inquiry and want it removed
2. Support Your Claim
Once you’ve contacted the creditor, you may need to provide additional documentation to support your dispute. Share proof that you didn’t request a hard pull on the date in question.
3. File a Dispute
After notifying the creditor about the mistaken hard pull, it’s time to write a dispute letter to the three main credit bureaus. The FTC has a free sample dispute letter you can use as the correct format. This will alert the three credit bureaus about the hard inquiry mistake and start the process of removing it from your credit report.
4. Make Copies of Your Claim
When writing or talking to the creditor and the three main credit bureaus, it’s important to keep copies of all your conversations. Make copies of letters and dispute information so you can back up your claim if it comes into question in the future. This will also help you save time in the event the claim is lost or unsuccessful.
5. Follow Up After 30 Days
The hardest part about disputing a hard pull you didn’t approve is waiting to hear back. Online disputes are usually processed more quickly but can be harder to keep an accurate paper trail. After submitting your claim, set up a reminder to follow up in 30 days. Creditors are required by law to review your claim within 30 days, so you should have an answer by then.
Before applying for a new form of credit be sure to review your entire credit report, including the inquiry section. It’s important to keep it in good health and monitor the number of hard pulls. The higher your credit score the better chance you have of getting approved for the funds you need, so apply for new loans and credit cards wisely.