Understanding Soft Inquiries:
What You Need to Know About Them
There’s a type of credit check that doesn’t harm your credit score. It’s called a “soft inquiry” or a “soft pull,” and here’s the scoop – it’s only visible to you, not to lenders.
Apart from checking your own credit, there are instances when you might encounter a soft inquiry. It’s a good idea to know the ins and outs of soft inquiries and when you might come across one.
What’s the Deal with Soft Inquiries?
These are the basics. A soft inquiry occurs when either you or someone else accesses your credit report using your Social Security number. The United States has three credit reporting agencies Equifax, Experian, and TransUnion.
Soft inquiries allow you, or anyone you authorize, to view your credit reports without affecting your credit scores. Credit inquiries account for 10% of your FICO credit scores, which most top lenders use. These scores consider inquiries from the past year, although these inquiries can linger on your credit reports for up to two years.
The cool part? Soft inquiries show up on your credit report, but only you can see them. They don’t play a role in calculating your credit score, so you can check your credit reports as often as you want without hurting your scores.
Soft vs. Hard Inquiries
Now, here’s the critical part: soft inquiries won’t dent your credit, but hard inquiries can. Hard inquiries are those conducted by authorized parties that appear on your credit reports and are visible to lenders.
Examples of soft inquiries include:
When you check your credit reports yourself.
Landlords take a peek at credit reports before renting to tenants.
Employers evaluate credit history as part of the hiring process.
Hard credit checks typically occur when you:
Apply for a personal loan, credit card, or mortgage.
Consider refinancing an existing loan.
Try to lease a vehicle.
In terms of credit scoring, hard inquiries carry less weight than factors like your payment history or credit utilization. Depending on the other aspects of your credit report, each new hard inquiry might only cost you a few points.
When Would You Encounter Soft Inquiries?
Lenders often use soft inquiries to preapprove borrowers for various loans and lines of credit. When seeking rate quotes or preapproval, it’s crucial to confirm if only a soft inquiry is required, rather than a hard credit check.
Here are some financial products where soft inquiries are commonly used:
- Personal Loans
Ideal for borrowing a lump sum for various purposes.
Lenders like Upstart and Upgrade offer personal loan preapproval with a soft credit inquiry.
- Student Loan Refinancing
A chance to streamline monthly payments and potentially lower interest rates.
SoFi and Earnest provide student loan refinancing rate quotes without hard credit checks.
- Car Loan Refinancing
Consider it if you want a lower payment or interest rate.
RefiJet and Caribou allow you to check rates without affecting your credit scores.
- Credit Cards
Credit card companies might use soft inquiries to prescreen you for different offers.
While new card applications usually require hard inquiries, credit limit increase requests can lead to either hard or soft inquiries, depending on the card.
- Insurance
Insurers often use credit scores to assess risk.
Companies like Liberty Mutual and Lemonade offer insurance rate quotes without impacting your credit.
Advantages of Soft Inquiries
The biggest plus of soft credit inquiries? It doesn’t influence your credit scores. Whether you’re comparing loan interest rates or monitoring your credit reports regularly, you won’t lose any points.
Soft inquiries are also fantastic for comparing interest rates for various loans, helping you find the perfect one for your needs.
Considerations for Soft Inquiries
But, of course, there’s more to it. Soft inquiries can lead to unwanted credit card offers filling up your mailbox. Although they won’t harm your credit, they can be quite annoying. However, you can opt out of receiving such offers from credit card companies.
Another thing to remember is that soft inquiries can’t replace hard inquiries when applying for loans. Sooner or later, you might need to consent to a hard credit pull for any loans or lines of credit you want.
In conclusion, soft credit inquiries are a valuable tool to explore your options without damaging your credit. If you’re keen on understanding what’s affecting your credit scores, consider signing up for credit monitoring through a service like Experian or myFICO. These services keep track of changes to your credit reports, which reflect on your credit scores monthly. Regular credit checks can help you identify areas to boost your scores over time.
FAQs
How many points does a soft inquiry cost a credit score?
Soft inquiries have no impact on credit scores, so there’s no need to worry about losing points. Hard inquiries, on the other hand, can lead to score reductions each time you apply for credit.
Does a credit freeze prevent soft inquiries?
Credit freezes block new credit from being issued in your name, but you can continue checking your own credit reports while they’re frozen.
How long do soft inquiries stay on your credit report?
Soft inquiries can remain on your credit report for up to two years, but they’re only visible to you. During this period, they don’t affect your credit scores.
