The other day my friend asked, “What is the issue requesting credit history? Does your credit score go down each time people pull your credit?”
Whenever your credit is pulled it is called an inquiry. There are two types of inquiries-hard and soft. An inquiry could hurt your credit score. Let me explain.
Soft Credit Inquiry
For example, a soft credit inquiry is when you request a free copy of your credit report. This soft inquiry will not impact your credit score. And it’s a good idea to review your credit report at least once a year.
Typically, a soft credit inquiry is used for informational purposes only.
A few examples of soft credit inquiries are:
- Employer checking your credit report,
- Insurance companies reviewing your credit history, or
- Credit card companies evaluating your credit history to solicit you with pre-approved credit offers.
Since you are not personally applying for any credit line or trying to borrow money these are considered soft inquiries.
Hard Credit Inquiry
On the other hand, it’s a hard credit inquiry when you fill out several car loan applications at different financial institutions to finance your new ride. This is a hard inquiry because lenders are using your credit report to make loan approval decisions. Some other examples of hard inquiries would be for:
- Credit cards
- Mortgage
- Personal loan
- Private student loan.
These companies use your credit to evaluate you for lending decisions. Unlike soft credit inquiries, hard credit inquiries could negatively impact your credit score.
So be careful about allowing people to run your credit. It could hurt your credit score. Limit any hard inquiries to things you need. Be sure to shop around first. Look for a reputable lender with the best lending terms (e.g. interest rate, closing costs) before allowing any company to pull your credit report.
For more information on how credit inquiries may impact your credit score, check out Experian’s Hard vs. Soft Inquiries on Your Credit Report.
