Oftentimes, while making a firm financial decision, we cross-check everything to keep it in proper order. Whether we plan to take out a loan, a credit card, or any mortgage, their approval is all dependent on our credit information available to the helping lender. For which, credit inquiries are made. Let’s learn more about what soft and hard inquiries are and how do they affect your credit score
What are soft credit inquiries and hard credit inquiries?
- Soft credit inquiries, also known as soft credit checks, are the type of inquiries that are either made by you while checking your credit report.
A soft inquiry occurs when someone analyses your credit record without you submitting a new credit application.
To give a quick insight, a soft credit inquirer may take place if:
- You check your credit by yourself.
- Your potential creditors check your credit.
- The lending institution checks your credit to decide whether to pre-approve you for a loan/credit line or not.
However, soft inquiries have no bearing on your credit scores because they aren’t linked to a specific credit application.
- A hard credit inquiry, on the other hand, is the one in which banks, lending institutions or any other third-party lender checks your credit report.
When you apply for a new line of credit, such as a credit card or a loan, you will be subjected to a hard inquiry, indicating that a creditor has requested access to your credit records to assess the level of risk you pose as a borrower.
Hard inquiries appear on your credit record and have the potential to lower your credit score. When comparing rates on financial goods, hard inquiries are an unavoidable component of your credit file. Hence, they should be used rarely and intelligently. As a result, it’s critical to understand when they occur, how they affect you, and why it’s better to avoid them.
Impacts of hard inquiries on credit score
When you apply for new credit, such as a loan or a credit card, the loan or credit card issuer will always request a hard inquiry to examine your credit background. Hard inquiries stay on your credit report for two years, although they usually have a minor impact on your credit scores and only last a few months.
Monitor your credit score frequently to keep an eye on the impact of hard inquiries on your credit. To get free access to your credit score, you can check your credit score at Buddy score without getting charged a single penny.
How do credit inquiries affect the credit score?
In general, your credit report is an evaluation based on the scoring models and is dependent on the information that a particular bureau has of your credit history.
When you apply for credit with a lender or a credit card company, they will want to review your credit history. You can examine your credit report before applying for new credit to see what they’ll see. However, credit inquiries have very little to do with your credit score evaluation. But lenders consider your previous and current financial behaviour, such as payment history and loan and credit card balances, when deciding whether to deal with you when lending you any personal loan or business loan.
Missed or late bill payments, for example, could be interpreted by lenders as a warning that you’re likely to skip a payment again in the future. As a result, you may be turned down for a loan or face higher interest rates. In such cases, the lender must obtain your credit file from the credit bureau to obtain the information it requires.
With the increase in credit inquiries made, banks and lenders are more inclined to make decisions for your loan approval or rejection. Hence, it is always suggested that you make timely payments and duly pay off your financial obligations. You can try to use your credit responsibly and should avoid maxing out credit cards utilization for a better experience in the future