When it comes to credit inquiries, there are two main types: hard inquiries and soft inquiries. Understanding the difference between the two can help you manage your credit and make informed financial decisions.
Hard Inquiries
A hard inquiry occurs when a lender or financial institution checks your credit report as part of the application process for a loan or credit card. This type of inquiry is initiated by you, the consumer, when you apply for credit.
Hard inquiries can have an impact on your credit score. Each hard inquiry is recorded on your credit report and can stay there for up to two years. Multiple hard inquiries within a short period of time can be seen as a red flag by lenders, as it may indicate that you are actively seeking credit and could be a higher risk borrower.
It’s important to note that while hard inquiries can temporarily lower your credit score, the impact is usually minimal and typically fades over time. However, it’s still a good idea to be mindful of how many hard inquiries you have on your credit report.
Soft Inquiries
A soft inquiry, on the other hand, does not impact your credit score. Soft inquiries occur when you check your own credit report, when a lender pre-approves you for a credit offer, or when a company checks your credit for promotional purposes, such as a pre-screened credit card offer.
Soft inquiries are not visible to lenders and do not affect your creditworthiness. They are used for informational purposes and do not have any negative impact on your credit score.
Why the Difference Matters
Understanding the difference between hard and soft inquiries is important because it can help you make smart credit decisions. For example, if you’re shopping around for the best interest rates on a loan, it’s a good idea to do your research and compare offers. However, be aware that each application you submit will result in a hard inquiry on your credit report.
On the other hand, checking your own credit report or receiving pre-approved offers will not impact your credit score. This allows you to review your credit information and explore potential credit options without worrying about negative consequences.
Conclusion
In summary, hard inquiries are initiated by lenders when you apply for credit and can impact your credit score. Soft inquiries, on the other hand, do not affect your credit score and are used for informational purposes. Understanding the difference between the two can help you make informed decisions and manage your credit effectively.
Remember, it’s important to regularly monitor your credit report and be aware of any inquiries or changes. By staying informed and making responsible credit choices, you can maintain a healthy credit profile and achieve your financial goals.
