Difference in Hard Credit Inquiry And Soft Credit Inquiry? How It Affects Loan Approvals

Understanding soft credit enquiry vs hard enquiry or a hard pull vs soft pull is crucial for managing your financial health effectively. Both credit enquiry types serve different purposes and have distinct impacts on your credit report and score.

What Is a Hard Credit Enquiry?

A hard credit enquiry takes place when a lender formally requests access to your credit report during a loan or credit application process. This is done to evaluate your creditworthiness, using data such as your payment history, outstanding debts, and credit utilisation. Each hard enquiry is recorded on your credit report.

How Long Do Hard Enquiries Stay on Your Credit Report?

A hard credit check impact can last just as long as a soft enquiry. Hard enquiries can slightly lower your credit score and remain on your credit report for up to two years. However, most scoring models only consider hard enquiries from the past 12 months when calculating your score.

What Is a Soft Credit Enquiry?

A soft credit check or a soft enquiry occurs when you or an authorised party, like a potential employer, reviews your credit report. A soft credit check can also happen when a credit card company or lender checks your credit to prequalify you for an offer. These checks do not indicate a formal credit application and therefore do not affect your credit score.

How Long Do Soft Enquiries Stay on Your Credit Report?

Soft enquiries remain on your credit report for up to two years . However, since they’re not linked to credit applications or loan decisions, they do not affect your credit score.

Key Differences Between Hard & Soft Enquiries

The difference between soft credit enquiry and hard enquiry lies primarily in their purpose, effect on your credit score, and whether they require consent.

1. Definition and Purpose

A soft enquiry occurs when your credit report is checked for non-lending purposes, whereas a hard enquiry happens when a lender pulls your credit report to check your creditworthiness for a new loan, credit card, or line of credit.

2. Credit Score Impact

Soft enquiries have no effect on your credit score, but hard enquiries can lower your score by a few points, especially if several are made in a short time.

3. Visibility on Your Credit Report

Soft enquiries aren’t visible to lenders; hard enquiries are visible to lenders or any authorised party who checks your credit report.

4. Terms of Consent

Soft enquiries may occur without your direct consent – for example, pre-approved credit offers. On the other hand, hard enquiries require your explicit permission before your credit report is accessed.

5. Common Situations

Soft Enquiries:

• Checking your credit report
• Prequalification checks by lenders
• Promotional credit offers
• Employment background checks
• Setting up utilities or renting an apartment
• Purchasing insurance

Hard Enquiries:

• Applying for a new loan or credit card
• Mortgage applications
• Car purchases or leases
• Requesting an increase in credit limit

How Credit Enquiries Affect Loan Approvals

Let’s look at how credit enquiries could affect loan approvals:

• Each hard enquiry can lower your credit score by a few points.
• Multiple hard enquiries in a short time can raise concerns among lenders.
• A credit report with frequent hard enquiries may cause lenders to classify you as a higher-risk borrower, potentially reducing your approval chances.

How to Minimise Credit Enquiries

To avoid the negative effects of too many hard enquiries, consider the following tips:

• Check for prequalification offers before formally applying for credit.
• Since each loan or credit card application can trigger a hard enquiry, consider applying for new credit only when truly necessary.
• Carefully consider your financial situation and needs. Sometimes, saving or alternative financing might be a better option.
• Monitor your credit reports regularly to stay informed.

Can You Remove Hard Enquiries from Your Credit Report?

Legitimate hard enquiries cannot be removed from your credit report. However, if you notice a suspicious or incorrect enquiry, you can take the following steps:

• Contact the creditor listed in your credit report to ask about the hard enquiry.
• If you believe it is unauthorised or inaccurate, you can dispute it with the credit bureau.
• You may also place a fraud alert or security freeze on your credit report to prevent further unauthorised access.

Conclusion

Understanding the difference between soft and hard credit enquiries is essential for maintaining a healthy credit profile. By applying for credit judiciously, checking your credit reports regularly, and disputing any unauthorised enquiries, you can safeguard your credit score.

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