There are two types of credit checks or inquiries, a hard credit check and a soft credit check. Depending on who wants to check your credit and why they want to check your credit will determine whether it is a hard or soft inquiry.
A hard credit check is done to evaluate the risk of lending or providing a service to someone. For example, when you apply for a loan, the lender can ask to perform a hard credit check when evaluating your application. The lender will typically choose one credit bureau to pull your credit report from and will use it to assess your risk.
Do note, that a lender or any third-party looking to perform a hard credit check on your credit history must get your consent to legally do so. Also, keep in mind that not all lenders check credit when assessing a credit application.
A hard inquiry is recorded on your credit reports, which may cause a small decrease in your credit scores. Every hard inquiry performed remains on your file for an average of two to three years (but can stay up to 6 years with TransUnion) and is visible to anyone who views your credit reports during that time.
Ideally, you want to refrain from applying for too many credit products, especially during a short time frame. The presence of multiple hard credit checks on your report may indicate an inability to service debt and signals to lenders that extending credit to you is risky.
What about the scenario where you’re shopping for a home and are visiting multiple lenders to find the right mortgage, which inevitably results in numerous hard credit checks? Credit bureaus allow consumers some leeway by granting them a window of opportunity where multiple hard credit checks are counted as a single inquiry. The time frame depends on credit bureaus’ scoring model but usually ranges between 14 – 45 days. However, be aware that this exception doesn’t extend to credit cards – each hard credit check performed on a credit card application counts as one check, no matter how many you apply for.
You can minimize the adverse effects of a hard credit check by:
A soft credit check provides less information than a hard credit check. It’s typically performed by a lender to prequalify you for a credit product, but it doesn’t function as an actual assessment that determines whether you’ll be approved for it.
Soft credit checks are also done by employers and landlords as part of a background check and insurance companies to create an insurance-based credit score, which is utilized to set your premiums. Furthermore, checking your own credit results in a soft inquiry and will not affect your credit scores.
A soft credit check can only be viewed by you and the person who did the check, and they do not affect your credit scores.
Unlike a hard inquiry, soft credit checks can be legally performed without your permission.
A soft credit check provides a basic overview of your credit report and lists your loans, lines of credit, payment history, and collections accounts. A hard credit check includes a more comprehensive report, enabling lenders to conduct a more detailed examination.
Whether the inquiry was a hard or soft one depends on whether you gave the entity performing the inquiry permission. Some of the most common entities that can perform hard and soft credit checks include lenders, landlords, insurance providers, utility providers, debt collection agencies, employers, and the government.
Hard credit checks usually occur when you apply for a
Soft credit checks usually occur when
Hard vs. Soft Credit Check FAQs
If I pull my credit, is it considered a hard or soft credit check?
If you pull your own credit report, it’s always considered a soft credit check and will have no impact on your credit scores.What happens if I apply for the same loan with multiple lenders?
Depending on the type of loan you apply for, multiple applications and its credit inquiries will have the effect of a single hard inquiry. Generally, this applies to mortgages, auto loans, or student loans. Credit bureaus will give you a grace period where multiple hard inquiries are recorded as a single inquiry, thus minimizing the negative impact on your credit scores. The grace period’s length is different for each credit bureau, but they typically range from 14 – 45 days. Because you don’t know which credit bureau a lender will rely upon to access your credit report, it’s prudent to complete your rate comparison shopping in as little time as possible. How long does a hard credit check stay on my credit report?
Most hard credit checks remain on your credit report for two years to 6 years depending on the credit bureau. Can a lender do a credit check without my permission?
Whether a lender can perform a credit check without your permission hinges on the type of inquiry that’s requested. A soft check doesn’t require your permission, while a hard check does. Lenders can perform a soft credit check without your consent to prequalify you for a credit card, which occurs without an application. Utility companies, insurance providers, and prospective employers also can legally perform soft credit checks and are not obliged to obtain your permission. However, if you’re directly applying to acquire a loan, the lender will need to conduct a hard credit check on your file and thus requires your consent to do so.
The key difference between a soft credit check and a hard credit check is that the latter can affect your credit scores. In general, a few hard inquiries on your credit report are negligible but accumulating too many over a short period can negatively affect it. Credit scores are a critical number that is regularly scrutinized by lenders, so ensure you only seek credit when you really need it and always work to manage your debt responsibly.
A detailed report that is meant to provide potential lenders with information to allow them to determine the business’ creditworthiness before extending credit. There is much more information in a business credit report when compared to an individual’s credit report. Business credit reports are generated and regulated by the credit bureau. A number that represents a business’ creditworthiness based on information within the credit report. The credit bureau calculates and regulates business credit scores. A governing body that oversees credit reporting agencies to ensure that personal information is collected, maintained and reported in a responsible fashion. The Consumer Reporting Act also ensures that individuals have the right to know what information is being reported in relation to them and who the information is being reported to. If any of the reported information is incorrect, you have the right to have it corrected under this act. The extension of money, goods or services with trust that the individual will repay the owed amount in the future. In today’s world, trust of repayment is determined through an assessment of creditworthiness using a credit application. A formal application, required by the majority of lending institutions, that gathers information from the applicant for the assessment of creditworthiness. The form will request information such as personal identification, income and expenses, residency, existing debt, and employment. A governing body that collects credit information about individuals and sells it to other entities that are in the business of extending credit for a fee. Credit bureaus are also referred to as consumer reporting agencies and credit reporting agencies. In Canada, there are two credit bureaus, TransUnion and Equifax. A financial product that allows cardholders to purchase goods and services using credit. The amount spent in a particular period becomes due at a specific date. If the amount is not paid on that date, interest will come into effect. Credit cards are a physical, plastic card. When a creditor extends credit to a consumer it comes with a credit limit, this is the maximum amount the consumer can borrow. Credit bureaus collect information about your personal finances and rate you to give potential lenders an easy way to assess your creditworthiness at first glance. There is a rating system in place for consistency and to protect from bias. Credit ratings are different from credit scores but are often used interchangeably. Your credit score actually determines what credit rating you’re given. As an example, if you have a credit score of 850, you’d be given a credit rating of “excellent”. The act of improving your credit score by removing inaccurate information from your credit report and working on healthy, responsible financial habits. A credit report contains information regarding your credit history and includes things such as your credit score, payment history, financial debts, record of debt payment, and any black marks on your credit. Credit reports can be obtained from credit bureaus, such as Equifax and TransUnion. A three-digit number that is calculated by credit bureaus using a mathematical rating system and information from your credit report. A credit score falls anywhere between 300 and 900, with 900 being the absolute best. Lenders might have minimum credit score requirements for extending credit which is why it’s important to maintain a healthy credit score. A type of bank that is owned by its members and operates for the benefit of their members. Credit unions are subject to provincial regulation and tend to be small in size and community-oriented. Because of these features, credit unions tend to be a superior way of investing, banking and lending. Credit unions are referred to as Caisses Populaires in Quebec. By assessing the historical information associated with a consumers’ finances, creditworthiness is the amount of trust a lender places on a borrower in relation to the repayment of extended credit. Creditworthiness is assessed using a combination of credit report, credit score, credit rating and application information. A credit score created by the Fair Isaac Corporation. FICO scores are used by lenders to determine a borrower’s creditworthiness before extending credit. Scores range between 300 to 900. Whenever an entity, including yourself, requests a copy of your credit report, an inquiry is recorded. A hard inquiry is a request from a lender or any other individual that is assessing your creditworthiness. A soft inquiry is a request by you to view your own credit report. A large number of hard inquiries can indicate financial struggles to a potential lender. A special promotional interest rate offered by credit card issuers for a specific period of time, such as a few months to a year. The goal with these rates is to attract new customers. A type of credit agreement that allows customers to borrow against a pre-approved credit line when making purchases. A credit card is the most popular form of revolving credit. The borrower is responsible for paying the borrowed amount plus interest each payment period. Revolving credit is also referred to as open-ended credit or charge account. Credit Glossary
Terms
Business Credit Report Business Credit Score Consumer Reporting Act Credit Credit Application Credit Bureau Credit Card Credit Limit Credit Rating Credit Repair Credit Report Credit Score Credit Union/Caisses Populaires Creditworthiness FICO Score Inquiry Introductory Rate Revolving Credit
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Mark is a writer who specializes in writing content for companies in the financial services industry. He has written articles about personal finance, mortgages, and real estate and is passionate about educating people on how to make smart financial decisions. Mark graduated from the Northern Alberta Institute of Technology with a degree in finance and has more than ten years' experience as an accountant. Outside of writing, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.
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