Learn the difference between soft and hard credit inquiries and how they affect your credit score.
Whenever information on your credit report is requested, it’s called an inquiry and gets categorized as either “soft” or “hard.” Here’s the difference between the two:
A soft inquiry doesn’t damage your credit score and is likely to occur without you even knowing. It could come from a credit card company that pre-approves you for a card offer, a potential employer, or an insurance company, for instance. Checking your own credit report is also a soft pull that has no affect on your credit rating
A hard inquiry can damage your credit score and happens when you actively seek credit by applying for a credit card, a retail store card, or a loan, for instance. Having too many hard pulls within a short timeframe indicates that you could be taking on too much additional credit and flags you as a potential credit risk. Hard inquiries make up about 10% of your credit score—so keep them to a minimum to keep your credit rating as high as possible. However, there is an exception if you're shopping for the best rates on a specific loan, such as a mortgage. While it's true that having lots of credit inquiries can decrease your score, the system won’t treat a cluster of credit inquires for one type of loan within this time frame unfavorably. So a good rule of thumb when you're shopping around is to submit all your loan applications to potential lenders within a two-week period.
To learn more about credit scores, scams, and myths, visit creditscore.com.
And for more Money Girl advice regarding credit scores, check out these episodes and tips: