Soft Pull Vs. Hard Pull: How Each Affects Your Credit

November 6, 2018

A lot of factors affect your credit score, and not all of them are within your control. One of the uncontrollable factors is credit pulls, which can be done by a lender, landlord, or credit card company.  They do this to see if you’re worthy enough for a loan, apartment, or mortgage. These inquiries can take the form of either a hard pull, which does affect your credit score, or a soft pull, which does not affect your credit score.

Let’s dive into the difference between the two.

What is a soft pull?

A soft pull is when a credit card company or lender checks your credit report as a background check. It’s simply a review of your credit,  and there’s no in-depth check, so that’s why your credit isn’t affected.

A soft pull shows exactly what you would see if you looked at your own credit report—lines of credit, loans, your payment history, and any collections accounts.

Unfortunately, these soft pulls can occur without your permission. 

Who does a soft pull?

Employers - Employers can (and do) check your credit. It can help them determine if you’re a responsible person. Lots of late payments or bills in collection can let employers know that you have a hard time staying organized with your money—but don’t worry, this doesn’t mean you won’t get the job. Unless your job involves finances, chances are employees won’t look at your credit unless they have a reason to.

The report that potential employers see is not the same report that lenders see. The report can’t show any information that could violate equal employment regulations, which includes things such as your birth year or marital status. It also doesn’t show your credit scores or any account numbers.

Credit card companies - Major credit card companies often do soft pulls to see if you’re pre-qualified for a credit card. That way they can send you the most relevant offers and try to get you to sign up.

While this may be annoying, when you’re ready to apply for a credit card it can be a great way for you to see a list of cards you can attain easily.

Insurance companies - The same rule applies here as with credit card companies. If you get auto insurance, homeowners insurance, or any other insurance quotes, this involves a soft pull.

Again, it’s not your real credit score that these insurance companies see. They’re using your credit report information to create what’s called a credit-based insurance score. They see a lot of the same information as your FICO score, but the information is weighted a little differently.

What is a hard pull?

A hard pull is used to determine whether or not you’re worthy of being given a loan or credit card. These pulls can lower your score, especially if you have a bunch of hard pulls within a short time span. A handful of hard pulls all at once shows companies that you’re in need of a lot of money, which is a sign of poor money management. These pulls typically stay on your report for two years.

But, these hard pulls don’t affect your score as much as other factors such as credit utilization and the length of your credit history.

Who does a hard pull?

Lenders and credit card companies - A hard pull is designed to make an informed financial decision on whether or not to loan you money or a line of credit. Therefore, lenders of any kind will always do a hard pull on your credit. They want to make sure you can pay back the loan you’re requesting.This is true of everything from mortgages to private student loans.

Landlord - Landlords can run either hard or soft credit pulls. Usually, when you agree to apply for an apartment, the landlord will include a form that will ask your permission to run a credit check.

Some landlords go through third-party background and screening companies, which do a hard pull since you must give your social security number. Others use new services offered by the three major credit bureaus. These are soft pulls and the landlord receives a modified report.

How to make sure credit inquires don’t affect your credit

Check your credit frequently - Checking your own score regularly will never affect your credit and it can help you keep up to date on any major changes to your score.

Apply for loans sporadically - The easiest way to keep credit pulls from affecting your score is to make sure you don’t apply for a lot of loans or lines of credit. You can do this by shopping around for different rates on auto loans, student loans, credit cards, or any other loans. You can also get pre-approval for mortgages, auto loans, or personal loans.

When you rate shop, make sure to take advantage of the FICO 30-day grace period. When your credit score is pulled, it doesn’t count any inquiry that’s happened in the last 30 days. If you’re shopping for the best rate, do all your loan applications within a two-week period.

Focus on improving other aspects of your score - While credit pulls can lower your score by three or five points (per inquiry), this doesn’t have a huge effect on your credit. Your credit utilization (how much credit you have available) makes up a large chunk of your credit score. The lower you keep it, the better. 30 percent or lower is a good goal. That means you shouldn’t be spending up to the maximum of your credit line each month.

The length of your credit history is also an important deciding factor, so make sure to carefully consider whether or not you should close your credit card accounts.

Summary

When you apply for a line of credit, your credit will go through a hard pull—which will negatively affect your credit. If you’re simply looking for pre-approval, or your employer or landlord wants to view your credit, this involves a soft pull on your credit—which won’t affect your credit.

Money Under 30 is an independent personal finance site providing free advice for young adults wanting to make informed decisions about where their money goes. Read more at: www.moneyunder30.com

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