If you recently purchased or leased a car, rented an apartment, purchased a home, or even applied for a credit card, your credit has been checked!
It’s a routine procedure to determine if you’re eligible to borrow money (Why can’t companies just trust us with money?!).
If your credit report/score is going to be pulled, an inquiry will be made – hard or soft. Let’s go over the differences and examine the implications these inquiries have your credit score.
Hard inquiries are used when YOU are making a lending decision – involving a car or home purchase, and even renting an apartment. These inquiries actually show up on your credit report for up to two years.
Generally, these inquiries have a very minimal impact on your credit score. Although it has a minimal impact on your credit score, you should avoid applying for several credit cards within a short time-frame – a potential red flag. Applying for several credit cards may indicate to creditors that you’re short on cash and could potentially start to accumulate debt that you cannot repay.
Bottom-line: Hard inquiries have a minimal impact on your credit score, but minimize them when possible!
Unlike hard inquiries, soft inquiries do not show up on your credit report.
If a credit card company is trying to sell you on a new card, they can examine your credit to determine if you’re eligible. Similarly, your employer may check your credit as part of a background check.
As a rule of thumb, if you’re giving permission to have your credit report pulled, then it should be a hard inquiry. On the other hand, if permission was not granted, it should be reported as a soft inquiry.