The Impact of Hard vs. Soft Credit Inquiries on Your Score

When you apply for credit or check your own credit report, a record of the inquiry is added to your credit file. However, not all inquiries affect your credit score in the same way. Understanding the difference between hard and soft credit inquiries is essential for managing your credit health. Here’s how each type impacts your score.

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What Is a Hard Credit Inquiry?

A hard credit inquiry occurs when a lender or creditor checks your credit report to assess your creditworthiness for a loan, credit card, or other financial product. Hard inquiries are made when you apply for:

Mortgages
Credit cards
Car loans
Personal loans
Mobile phone contracts

These inquiries indicate that you are seeking new credit. They can have a small but potentially significant impact on your credit score.

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What does a Hard Inquiry mean for my Credit Score?

Hard inquiries can lower your credit score by a few points, typically between 5 and 10 points per inquiry. While this might not seem like much, multiple hard inquiries in a short period can add up, particularly if you have a shorter credit history or fewer credit accounts. Lenders may see numerous hard inquiries as a sign that you’re taking on too much debt too quickly, which can be a red flag.

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However, if you’re shopping around for the best rate on a mortgage or car loan, multiple inquiries made within a short timeframe (usually 14 to 45 days, depending on the scoring model) are typically treated as a single inquiry. This is to allow consumers to compare offers without being penalised.

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What Is a Soft Credit Inquiry?

A soft credit inquiry, on the other hand, occurs when a person or company checks your credit report as part of a background check or when you check your own credit. Common examples of soft inquiries include:

Checking your own credit score
Pre-approved credit card offers
Background checks by employers
Insurance quotes

Soft inquiries are not linked to a specific credit application and do not indicate that you’re actively seeking credit.

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What does a Soft Inquiry mean for my Credit Score?

Soft inquiries have no impact on your credit score. They are recorded on your credit report, but only you can see them. Lenders and other third parties do not consider soft inquiries when assessing your creditworthiness. Therefore, you can check your own credit report as often as you like without worrying about damaging your score.

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Managing Hard and Soft Inquiries

Understanding the difference between hard and soft inquiries can help you manage your credit more effectively. Here are a few tips:

Limit Hard Inquiries: Only apply for credit when necessary. Avoid applying for multiple credit cards or loans within a short period, as this can lead to a drop in your score.

Take Advantage of Rate Shopping: If you’re shopping for a mortgage or car loan, do so within a short window of time to minimise the impact of hard inquiries.