Credit score: Hard inquiry vs soft inquiry – 5 key differences explained

Credit inquiries are important to help you maintain your credit score to as high a number as possible. In India, there exist two distinct kinds of credit inquiries: Hard inquiries and Soft inquiries.

Both are for different purposes and have varying implications on your credit score, personal loans interest rates and associated terms. Here, we shall list and outline the five most important differences between hard and soft inquiries:

1. Definition and purpose

A hard pull or inquiry takes place when the lender pulls your credit report for the intent of determining whether you would be eligible to be extended a loan or credit account. It needs to be authorised and normally takes place when you request new credit, such as a credit card or personal loan.

Unlike that, since it is information oriented, a soft inquiry generally occurs when you ask for your own credit report or when a lender asks if you are credit worthy without an application. It occurs for employment background screening and home background screening as well. A soft inquiry generally doesn’t stay on your credit profile unlike the hard ones.

2. Credit score impact

The two in which a hard and a soft inquiry are different is that both impact your credit score in different ways:

• Hard inquiries lower your score temporarily, usually by 5 to 10 points. Several hard inquiries within a short span of time can reflect financial difficulties and lower your score even more. This might even result in higher personal loan interest rates in the future if applied by you. 
• Soft inquiries on the other hand do not have an impact on your credit score, so it is a better choice to always ask for information regarding your credit well-being.

3. Visibility of credit report

Hard inquiries are widely known to lenders and remain on your report for up to two years. They will impact future borrowing. For example: Post a hard inquiry it will be very difficult for you to borrow money on low interest rates. Further, even if you secure a loan post hard inquiry still the terms of the personal loan, EMIs etc., are going to be challenging and unfriendly. 

Soft inquiries on the other hand, only appear on your record if you view your credit report for carrying out a check. They do not appear on the record for lenders and thus have no impact on your creditworthiness to borrow.

4. Terms of consent

Hard inquiries demand clear and express borrower permission. Your lender cannot view your credit report without your permission as it makes a hard inquiry.

Soft inquiries also, are generally not performed with your permission. Organisations can perform soft inquiries for solicitation or when you are looking at your own score.

5. Common situations

Common situations that utilise hard inquiries are:

• Applying for a new credit card.
• Getting a loan.
• Obtaining a mortgage.

Soft inquiries are mostly carried out when:

• You are looking at your own credit score.
• Pre-approval solicitations.
• Workplace background checks.

Conclusion

Therefore, it is important to understand how to distinguish between hard and soft inquiries so you can manage your credit score. Knowing how and when to pull new credit will help you safeguard your score and make smarter financial choices in the future.