The terms “hard credit pull” and “soft credit pull” have received a lot more interest in the last couple of years as consumers have become aware of the terms and the impact each can have on your credit score – and ultimately, on your financial future.  When applying for loans, credit cards, mortgages, DirectTV, etc the difference between a hard and a soft credit effects your credit score – particularly if you’re shopping around for a loan and applying with multiple companies.

Quick refresher: what is credit, again?

If a company extends you “credit,” that simply means they are giving you something of value – typically cash or a service – with the expectation that you will pay them back later.  And when you apply for a product that requires credit, the lender must verify if you are who you say you are and whether you are “credit-worthy.”  This process is called the underwriting process.  It just means that the lender trying to understand how likely you are to make your payments on time.   There are three major credit bureaus: Experian, Equifax, and Transunion.

Lenders typically work with one of these credit bureaus so that when you apply for a loan, they can:

• Verify that you are who you say you are
• Understand how well (or how poorly) you’ve paid your debts in the past.

A hard credit pull can actually decrease your credit score 5-15 points.  It’s usually only a temporary decrease, but it can be enough to make the difference in whether or not you qualify for credit.

What is a soft credit pull?

Companies conduct a soft credit inquiry, or a “soft credit pull,” when they want to verify your identity and/or understand what tier of credit you are in.  A soft credit pull does not give the requesting company your exact FICO score nor does it give access to your full credit history (for example, past delinquent payments).  A soft credit pull does not appear to lenders and other companies on your credit history, nor does it impact your credit score.  If pulling your own credit, YOU will see the soft credit pulls – but no one else will.

A soft credit pull is most often used when you check your own credit score, receive an employer background check, or get pre-approved for a loan or credit card.  However, even this can vary.  Some sites that appear to let users compare loans will actually conduct a hard credit inquiry.  BrightRates will ONLY conduct a soft credit pull, such as when presenting a pre-approved personal loan.

What is a hard credit pull?

The hard credit pull is when a lender pulls your credit history from a credit bureau in order to see all the information on your credit report.  This information includes:

• Your past addresses
• Your FICO score
• Your full name
• The last four digits of your social security number
• Past on-time payments
• Past delinquent payments
• Your maximum credit offered from other lenders
• The number of other hard credit inquiries

All of this information is important for a company to make a decision on whether or not to extend you credit (meaning, to give you a loan, credit card, mortgage, phone service, etc).  However, a hard credit pull will immediately lower your FICO score 5-15 points, and it will be viewable on your credit history for two years.

Will hard credit pull lower your credit score for two years?

No.  Estimates vary from 6 to 12 months. It will only appear as having occurred for two years.  But lowering your score for even a few weeks could be significant given that this likely happens at EXACT MOMENT that you could be receiving multiple hard credit inquiries.  Inquiries conducted on the same day typically only lower your score once.  However, don’t think that applying with four different banks on the same time will only lower your score once.  You don’t actually know when they’ll make the hard credit inquiry, and it could end up being on four different days.

Do ALL lenders conduct a hard credit pull?

Eventually, yes.  Anyone giving you cash is eventually going to conduct a hard credit pull to see your full credit history.  The key is when you allow this to happen.  Many lenders and loan search engines (like BrightRates) will conduct a soft credit pull in order to give you a non-binding rate offer or a pre-approvel.  This is ideal because it allows you, the borrower, to shop around and compare rates from multiple lenders without realizing any impact to your score.

Once you decide to accept this rate, then the lender will conduct a hard credit pull.  At that point, you should be pretty confident that you are moving forward with that lender anyway, provided that the rate does not change significantly.  BrightRates loan search only works with lenders who accept soft credit pull information.  In this way, we can show you which lender is the best fit for you without impacting your FICO score.  You’ll only have the hard credit pull conducted if and when you decide to accept a loan from that lender.

Credit checks can occur for more reasons that you think.  In the case of cell phones, you can get a prepaid plan with no credit check on carriers such as T-Mobile, but no hard credit pull can actually limit your service coverage.  Below will give you a quick idea of when a soft inquiry vs a hard inquiry may occur.

In Summary

Hard credit inquiries happen to all of us at some point, and that is ok.  It’s part of getting credit.  But because hard credit inquiries have an immediate impact and a two year record, there are a few precautions:

1. Be loyal. For services that conduct hard credit pulls, try not to continually switch providers
2. Be aware. If applying for a loan or a service, make sure the website says that it will not impact your credit score
3. Be smart. If looking to obtain a loan or mortgage in the neXt few months, avoid hard credit pulls