Mastering Credit Inquiries: Hard vs Soft - The Key to Credit Health

 
When it comes to credit inquiries, there are two main types: hard inquiries and soft inquiries. Here's what you need to know about the differences between them:

Hard Inquiries:

1. Definition: A hard inquiry occurs when a lender or financial institution checks your credit report to make a lending decision. This typically happens when you apply for credit, such as a credit card, loan, or mortgage.
2. Impact on Credit Score: Hard inquiries can have a negative impact on your credit score. Each hard inquiry may cause a slight decrease in your score, usually by a few points. The effect is typically temporary and lasts for about two years.
3. Authorization Requirement: Hard inquiries require your explicit permission or authorization. You must provide consent for the lender or institution to access your credit report.
4. Visibility: Hard inquiries are visible to other lenders or creditors who review your credit report. They can see when and why you applied for credit in the past.
5. Purpose: Hard inquiries are used by lenders to assess your creditworthiness and determine the level of risk associated with lending you money. Multiple hard inquiries within a short period may raise concerns about your credit behavior.

Soft Inquiries:

1. Definition: A soft inquiry occurs when your credit report is checked for reasons other than a credit application. Common examples include checking your own credit report, pre-approved credit offers, or background checks by potential employers.
2. Impact on Credit Score: Soft inquiries do not impact your credit score. They are not considered in credit score calculations and are only visible to you on your credit report.
3. Authorization Requirement: Soft inquiries do not require your explicit permission. They can be conducted without your knowledge or consent.
4. Visibility: Soft inquiries are visible only to you on your credit report. Other lenders or creditors cannot see them.
5. Purpose: Soft inquiries are generally used for informational or promotional purposes. They allow you to check your credit report, receive pre-approved offers, or allow potential employers to conduct background checks without affecting your creditworthiness.

It's important to note that while hard inquiries can slightly lower your credit score, the impact is typically small and temporary. However, if you have multiple hard inquiries within a short period, it may raise concerns for lenders. Soft inquiries, on the other hand, have no effect on your credit score and are generally harmless.