Hard and Soft Credit Inquiry

Whenever you apply for a new credit card, take advantage of a special payment program at a department store, or make a major purchase, you can expect that there will be a check of your credit status, also known as a credit inquiry.  These come in two types:  hard checks and soft checks.  Here is what you should know about each one.

A hard inquiry is usually initiated by a lender to allow them to make a reasonable decision about whether or not you are a good risk for the new credit card, mortgage, or other loan.  In some instances, it can also happen if you are trying to rent an apartment. 

These inquiries appear on your credit report.  A single hard inquiry is usually of no concern but may cause your credit score to drop a few points.  Multiple hard checks can be a signal to potential lenders, however.  Not only will your score decline, but potential lenders will see this as a sign of financial insecurity. 

Understanding Credit Inquiries

The good news is that if you are obviously rate shopping for the best deal on a mortgage or a car loan, like during a two-week period for the same type of loan, it will only be reflected as a single inquiry.

Hard credit checks will appear on your financial record for two years, but they will only affect your credit score for a single year.  If you would like to see who is making these inquiries, there are some free credit monitoring services.  If you want additional information, you will probably need to pay a fee.  It is a good idea to check this periodically to see if there are errors so that you can file the appropriate form to get this corrected.  It is also possible that someone is trying to use your name fraudulently.  If so, you may need to freeze your account against identity theft.

A soft inquiry is when someone or a company only sees a portion of your credit history.  These are sometimes run to offer a promotion on a product or service, prequalifying for a loan, or during a pre-employment screening. 

This is also the information you get when you check on your own credit score, which is actually encouraged.  Because lenders are not able to view soft inquiries, you can check your own credit as often as you like without throwing up any red flags.  It also allows you to shop for the best rates.  When you fill out the paperwork, the potential lender will then run a hard credit check, which will appear on your report.

Soft vs Hard Credit Checks

When you do make an application for credit or a new service (cable, utilities or internet) it is up to the company to decide whether they will do a soft or hard check.  It is perfectly acceptable for you to ask them in advance, just so you know what is happening.

To sum up, there are a number of circumstances when your credit will be accessed.  Excessive hard inquiries will have a negative impact, so you need to be aware of when and how often this is happening.  If you are shopping for a mortgage, expect your credit to be scrutinized. 

If you have more questions about credit inquiries or how they can be managed, contact a knowledgeable source like easyhouseloan.ca.  They have experts who deal with this subject every day and will be happy to help you understand what is happening and why.