How can I recognize a hard credit vs soft credit inquiry, and do I care? If you get a copy of your credit report, you’ll see more than just your current and historical credit accounts. You’ll see your account balances, credit limits, and payment history. The payment history includes any payments made more than 30, 60 and 90 days past the due date. You’ll also see credit inquiries.
What is a Credit Inquiry?
A credit inquiry is simply an instance where you or a third party has looked at your credit report. Some credit inquiries can have an impact on your overall credit scores. However, not all inquiries are so consequential. There are two types of credit inquiries – a hard vs soft credit inquiry.
A Soft Credit Inquiry Has No Impact on Your Credit
Soft inquiries are common and somewhat frequent. The most common type of soft inquiry is one where a creditor is curious about offering you a new credit account, so they check your score to make sure you qualify. If you’ve ever received an offer for a credit card that’s preapproved, that company has done a soft inquiry on your report.
Other types of soft inquiries include potential employers checking your credit, or when you check on your own score. It’s important to understand that soft inquiries have no impact on your credit, but they will be noted on your report and can be done without your consent.
A Hard Credit Inquiry Can Lower Your Credit Score
Hard inquiries occur when you apply for a loan, credit card, or mortgage and you’ve given written consent to a creditor to check your scores. Several hard inquiries in a row for a credit card can negatively impact your score, as this type of action may give the impression you’re scrambling for credit ahead of some financial hardship. Multiple hard inquiries in a row from an auto, mortgage, or student loan lender are less likely to have a negative impact. In these instances, reporting agencies are more likely to assume you’re “rate shopping”. In this case, the multiple inquiries are viewed as a single inquiry.
Hard inquiries stop impacting your score after a year’s time, but they will remain on your credit report for 24 months. While inquiries do play a part in assessing an individual’s credit, they represent only about 10% of what goes into a credit score. Things like making payments on time and your overall debt burden have a far greater impact on the health of your credit reputation.
Next Question — The Lender Does a Credit Inquiry – How much can you afford?
You’ve started your home buying search and are dreaming big – so now you need to take the next steps to make sure you can realize that goal. Now is the time to do your research and find the financing options for a home that will work best for you.
Even if you’re in the “just thinking about it” stage, it’s a good idea to speak with a reputable lender to find the most suitable mortgage for your specific needs. When you choose to become pre–qualified, you will provide some basic information about your financial situation to a lender over the phone or online.
Prequalification is useful for making preliminary decisions about how much home you can afford, but importantly it does not assess your creditworthiness. When you are ready to start looking at homes with me in person, you will want to become pre–approved for a loan.
Speaking with lenders such as Rich Clayton of OnTo Mortgage during the pre–qualification process will help you start the mortgage shopping process. Rich has the knowledge and experience to give relevant advice about mortgage choices, like whether or not PMI (private mortgage insurance) is the right choice for you.
Contact David 617.480.5480 to start a plan to meet your needs.