What we'll cover:
Your credit report says a lot about who you are and how you handle money.
The information in there is personal.
And a lot of people – lenders, potential employers, future landlords – use your credit history to determine how responsible you are. Fair or not, it’s how we’re judged by many.
So it’s important to understand how a business can access your credit report – not to mention why and what they will see. We’re talking about credit inquiries, which is when you or a ‘legitimate business’, as FICO describes it, requests to check your credit report. Taken a step further, there are two types of credit checks: a hard inquiry and soft inquiry.
It’s important to know the difference between hard and soft inquiries because there are implications for each. Let’s break it down.
If you’re looking to borrow money, apply for new credit or an apartment lease, you’re going to have to show lenders your track record of repaying debt. That’s the basic concept behind a hard credit inquiry, also known as a ‘hard pull’.
A hard inquiry is the only type of credit inquiry that can impact your FICO score or VantageScore. And lenders can’t just reach out to one of the three major credit bureaus to pull your credit report on their own.
You need to authorize the inquiry.
Hard inquiries exist for lenders who want to see your payment history, credit history and credit mix to decide if you’ll be a risk to repay debt on-time.
Unlike a hard inquiry, a soft inquiry will not affect your credit score. You’ll also hear this referred to as a ‘soft pull’. A potential employer could do a soft credit inquiry if you give them permission. Insurance and credit card companies can also do soft inquiries to pre-approve you for offers.
Soft credit inquiries may appear on your credit report, depending on the credit bureau.
According to Experian, here are two common situations in which soft inquiries on your credit report would be visible to someone other than yourself:
If you’ve ever asked yourself the question, ‘when is my credit report going to be pulled?’ then this list of examples is for you:
There are also other types of credit checks that could show up on your credit report as hard or soft inquiries, including ones by utility companies and cell phone providers.
There’s really no single hard and fast rule for how many points each hard inquiry impacts your credit score, so don’t drive yourself nuts trying to figure it out. FICO says it can vary from person to person based on credit history. FICO also says that a single hard credit inquiry can take less than five points off a person’s FICO Score. If you have a short credit history, a hard inquiry could have a greater impact on your credit score.
(You’re in the clear with soft credit inquiries – those will never affect your credit score.)
Just be mindful that too many hard inquiries for new credit done in a short period of time is a watch-out for lenders and could negatively impact your FICO Score; lenders could think you’re a risk to repay debt.
While each credit type of credit check counts as a single credit inquiry, FICO factors in ‘rate shopping’ when calculating your FICO score. They consider all hard inquiries for a mortgage, auto or student loans made within a 45-day period as a single credit inquiry. That way your credit score won’t be dinged for each inquiry. The same goes for when you’re searching for a rental property.
VantageScore, however, does things slightly differently.
The VantageScore model considers all hard credit inquiries made within a 14-day rolling window as a single credit inquiry.
Generally speaking, a hard inquiry usually stays on your credit report for just over two years, but they typically only impact your FICO Score for a year. Same goes for VantageScore: hard inquiries can remain on your credit report for just over two years but a credit score impacted by a hard pull can return to its pre-inquiry level in a few months.
If you’ve spotted an inaccurate hard inquiry on your credit report – say, a hard inquiry done without your permission – rest assured there’s a way to resolve it.
Each of the three major credit reporting agencies has its own online tool for making credit report disputes. You can also directly contact the company that provided the information to the credit reporting agency.
The Federal Trade Commission (FTC) recommends you contact both the credit reporting agency and the company that reported the information, in writing, about the inaccuracy. Check out the FTC’s website for a sample letter for disputing errors on your credit report.
The best way to limit hard credit inquiries is to be mindful of how often you’re applying for new credit. We get that sometimes that’s easier said than done.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.