Credit Cards

Why It Pays To Know Hard 'Pulls' From Soft

Can a credit inquiry hurt your credit score? It depends on the type of inquiry--or “pull,” in industry lingo.

A credit inquiry is a record of someone, or more often some company, accessing--”pulling”--your credit report. The record contains the date when the report was obtained and who requested it. These credit checks live on your credit report for up to two years and can affect your credit score, depending on the kind of inquiry.

The harmless inquiry

A “soft” pull of your credit report doesn’t affect your credit score. In fact, you’re the only person who sees the soft inquiries listed on your credit report. That information isn’t available to others requesting your report. Soft inquiries remain on credit reports for six months and are used for:

  • Regular account reviews by your current lenders
  • Pre-screened credit card offers
  • Employer background checks
  • Inquiries by insurers, who may use your credit score to help determine the premium you’ll pay.
  • Checking your own credit score
  • Checks by a credit monitoring service you signed up for

The inquiry that counts The type of credit inquiry that can lower your score is called a “hard” check or pull. That’s when a lender requests your report after you’ve applied for credit. A hard pull appears on your report when:

  • You apply for a mortgage or other home-backed credit like a home equity loan or line of credit.
  • You apply for an auto loan, student loan or personal loan.
  • You apply for a credit card.
  • You apply for a rental apartment. (While not a “garden-variety form of credit,” says Credit Expert John Ulzheimer, this still represents a payment obligation that lasts the length of the lease.)
  • A collection agency is looking for your contact information or trying to determine your ability to pay an old debt. (These can also be listed as soft pulls.)
  • You apply for gas or electrical service. (These can also be listed as soft pulls.)
  • You open an account for cell-phone or other telecom services, such as cable-internet. (These can also be listed as soft pulls.)

Not every hard inquiry appears on each credit report from the three major bureaus—Experian, Equifax and TransUnion. For example, credit card issuers typically request credit reports from just one bureau, so the hard pull won’t appear on credit reports from the other two bureaus.

Hard inquiry damage

Most hard pulls will ding your credit score because they signal that you’re acquiring new debt--or at least a potential source of it. And in the eyes of lenders, the new credit obligation increases your risk of possible default. A VantageScore can fall five to 10 points after a hard inquiry, says company spokesman Jeff Richardson, while FICO scores generally slip by less than five points.

That said, factors such as your track record in making timely payments on credit cards and loans are by far the most important determinant of your credit score. “Hard inquiries are the least valuable component of a credit score, so you won’t go from an 820 to 680 because of one or even 100 inquiries,” says Ulzheimer who formerly worked for FICO and Equifax.

The damage from hard pulls shrinks over time and is no longer a factor after 12 months. The actual record of the inquiry disappears from your report after 24 months.

Some hard pulls show up on your credit report, but are ignored by your credit score. Hard inquiries made by collection agencies and gas and electricity utilities aren’t calculated into a FICO score, according to Ethan Dornhelm, principal scientist at FICO. But hard inquiries made by telecom companies—such as cable and cell phone companies—may be factored into the score, he said.

When hard inquiries add up

Hard inquiries have a bigger impact on consumers with few accounts or a short credit history. The damage to your credit score also worsens if many lenders request your credit report over a 12-month span, indicating you’re potentially a riskier borrower. Consumers with six hard pulls or more on their credit reports can be up to eight times more likely to declare bankruptcy versus those with no inquiries, FICO found.

That’s why you should be prudent when accepting credit card offers with attractive sign-on bonuses. Only sign up for them when they’re truly too generous to refuse, especially if your credit history has already racked up a lot of hard pulls in the last year or so.

There is an exception to the multiple-inquiry rule: If you’re shopping around for the best interest rate on a loan, multiple inquiries within a specific period are generally considered just one hard pull by credit scores. For instance, VantageScore gives a two-week grace period for comparison shopping for all loans and credit cards, says Richardson.

FICO’s system is more complicated. Any credit inquiry for a mortgage, auto loan or student loan won’t affect your credit score if it’s less than 30 days old. After that, if multiple mortgage, auto loan or student loan inquiries occur within 45 days of each other, then FICO considers it just one hard inquiry.

“The score realizes you’re trying to find the best deal,” Ulzheimer says, “not buying 10 cars or 10 houses.”

Janna Herron

Janna is a Senior Writer at ValuePenguin covering banking, credit cards and credit scores. She has spent more than a decade writing and reporting on personal finance, real estate and business, and has received three journalism awards for her work.

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