Buzz
If you've been flooded with offers where you're 'pre-approved' for a specific product, you might be curious about the process the lender used to arrive at their decision.
The credit card, mortgage, or insurance company most likely conducted a 'soft' credit check on your report without requiring your consent, giving them limited access to your credit history.
Soft Credit Check
Aside from those pre-approval notices, a soft inquiry can also occur when you review your own credit report or when, for instance, an employer checks it as part of a background investigation.
“Since soft inquiries are not tied to any specific credit application, they are only visible on your credit report to you,” states Experian, one of the three major U.S. credit bureaus. “Lenders won’t be able to view them ... and soft inquiries are never factored into credit scoring models.” This means they won’t have any effect on your score.
This is in contrast to a hard inquiry.
Hard Credit Check
“When you apply for credit, such as a mortgage, car loan, or credit card, the lender (with your consent) will review your credit report and score from one or more of the primary credit bureaus,” says Experian. This is referred to as a hard inquiry/pull.
Here are some common examples, according to Credit Karma:
Applications for a mortgage
Applications for an auto loan
Credit card applications
Student loan applications
Personal loan applications
Rental applications for apartments
This can impact your credit score, though one single inquiry will likely have little effect. However, if you apply for several of the products listed above within a short period, it can negatively affect your score, though temporarily (as it signals to credit agencies that you may be 'struggling with payments or at risk of overspending,' according to Experian).
That said, if you’re applying for, say, multiple auto loans or mortgage lenders in a short span, most credit scoring systems will treat it as one inquiry, assuming you’re comparing offers for the best deal. The number of days you have to apply for multiple products at once varies by FICO model, but it's typically 30 days, and “the VantageScore model provides a two-week rolling window to shop for better interest rates on certain loans,” as stated by Credit Karma. However, it’s still not advisable to apply for numerous credit cards simultaneously.
“Experian keeps a record of each inquiry made into your file for two years, allowing you to see who has checked your credit history, but they will only count as one inquiry when determining your score,” the company explains. The impact on your score will lessen gradually over the two-year period.
Other factors that influence your credit score
As you’re likely aware, credit inquiries are just one element of your credit score. As Experian points out, hard inquiries don’t typically result in credit denials. Other factors, like the length of your credit history, credit utilization, and payment history, are far more significant.
That being said, if you want to reduce hard inquiries, try to do all your loan shopping within a brief time frame, so they’ll be counted as a single inquiry. Also, only apply for a credit card when you’re certain you want it and have a good chance of being approved.
Furthermore, make it a habit to check your report regularly (this won’t harm your score) for any hard inquiries, which will be listed, to detect potential fraud. If you spot something suspicious, here are the steps to take to remove the incorrect marks. And remember, inquiries remain on your report for only two years—so you shouldn’t be too concerned about them, provided they are legitimate.
However, more importantly, make sure to pay your bills on time and try to use as little of your credit lines as possible. This will improve your score far more than worrying about limiting inquiries.
