Soft inquiry vs hard inquiry: What’s the difference?

Credit has a massive impact on your financial options. People with good credit get lower interest rates on loans and credit cards and have more borrowing options. Good credit even makes it easier to land your dream job or score a nice apartment.

Vocabulary is your foundation, and credit inquiry terms are some of the most important to understand. Understanding a soft inquiry vs. a hard inquiry can help you manage your credit applications and take control of your credit history. Whether you're a financially savvy teen or a parent starting early on how to build your child's credit, here's what you need to know.

What are credit inquiries?

Credit inquiries are requests to view your credit report, which summarizes your history as a borrower. Depending on the type of report, it may include:

• A list of your open and closed credit accounts

• The most recent statement balance for each account

• Your history of on-time, late, and missed payments

• Your credit application history

• Any bankruptcy filings 

• Accounts sent to collections or involved in lawsuits

There are three major credit bureaus – Equifax, Experian, and TransUnion. Each creates a credit report for you. The basics are the same across bureaus, but some reports may include details others don't, depending on which creditors report to which bureaus.

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When someone requests to see your credit, they make a credit inquiry or credit check with one or more of the bureaus.

Importance of understanding credit inquiries

Credit inquiries come in two forms: soft and hard. They serve different purposes and affect your credit history in various ways. 

Understanding a soft vs hard inquiry tells you more about who's looked at your credit, why, and how it might affect your financial future.

For example, have you ever received a notice from a credit card company claiming it’s pre-qualified you for an account? Pre-qualified means the lender has looked at your credit report and determined that you have a good chance of approval if you apply. 

But there's a difference between being pre-qualified vs. pre-approved. Pre-approved usually means you've expressed serious interest in a loan, so the lender has to look at more details. 

Pre-approval often involves a hard credit check, which may affect your credit. Pre-qualification may involve a soft credit check, which usually doesn't. The more you know which type of check happened, the better you're prepared to decide whether to move forward.

What is a soft inquiry?

Also called a soft pull or soft credit check, a soft inquiry happens when someone requests the basics of your payment history. They want to know if you're a responsible borrower, but they don't need to approve or deny your credit application. 

Here are some common situations when someone might run a soft credit inquiry: 

• A potential employer is doing your background check

• You've applied for insurance, and the insurance company is analyzing what it should charge based on your risk level

• You want to rent an apartment, and the landlord wants to know if they can trust you to pay your rent

• You've asked a lender to pre-qualify or pre-approve you for a loan

• You ordered a copy of your credit report for a routine check or because you think there's a mistake

Thanks to the Fair Credit Reporting Act, credit bureaus usually have to get your written consent to run a soft pull, with a few exceptions. Bureaus can send your credit report if the request is related to one of the following:

• A credit transaction, such as pre-approval for credit cards

• Risk evaluation for insurance purposes

• Current or potential employment, but only with advance authorization

• Government licensing if the license requires financial responsibility

Soft pulls don't indicate an application for credit, so credit bureaus don't view them as a sign of increased risk. You'll see them on your credit report, but they won't impact your credit score.

What is a hard inquiry?

A hard inquiry is a more in-depth review of your credit history, usually conducted after you apply for credit.

In terms of a hard inquiry vs. soft, the most important difference is that a hard inquiry may affect your score. Applying for credit means you're likely to have more debt soon, which makes you a riskier prospect for lenders.

Your score is likely to drop more if you submit multiple applications in a short time unless you're applying for the same type of loan. The credit bureaus usually consider this to be "shopping around." They typically won't count it as multiple applications as long as your applications are within the accepted time frame – usually 14 to 45 days, depending on the credit bureau. 

How to identify soft and hard inquiries on your credit report

Credit inquiries appear on your credit reports, so you know who's checked your borrowing history and when. Recognizing a hard inquiry vs. soft inquiry helps you decide whether to take action. 

Start by looking at the name of the party who requested your report. If it's anyone other than a lender, it's almost definitely a soft check. If it's a lender and you've applied for credit from it, it's a hard check.

It's important to learn how to read a credit report and review it regularly, so you notice when someone has checked your credit. Errors happen, and you'll want to call the credit bureau if you see any hard inquiries that don't make sense.

Expert tips for reducing hard inquiries

Minimizing hard inquiries is important for keeping your credit score as high as possible. Even a single inquiry can take up to five points off your score, according to FICO, the people who calculate credit scores.

Inquiries are unavoidable sometimes, but it's beneficial to keep them to a minimum. Hard inquiries can affect your score for up to a year, and multiple inquiries may have a greater impact.

Avoid applying for credit cards you don't need, even if the introductory offer looks appealing. And if you're shopping for a mortgage, student, or auto loan, try to do all of your rate shopping within 45 days — the period FICO's scoring model considers a "single inquiry."

Making informed credit decisions for your credit health

Keeping a close eye on your credit report helps you keep your finances in good shape. It lets you spot errors, monitor your debt, and check whether any credit inquiries might be affecting your score.

Greenlight can help with money, resources, and tools for the family. Teen-friendly tools and gamified education can help you learn about credit scores, debt management, and more. Plus, with Greenlight Infinity, you get family debit and investing* opportunities to guide kids' finances in the right direction. Try Greenlight today.

Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC. 

*Greenlight Core and Greenlight + Invest families can earn monthly rewards of 1% per annum, Greenlight Max families can earn 2% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. Only Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.