What is a soft credit inquiry? Meaning, benefits and why it does not affect your credit score | Explained

There are two kinds of credit inquiries. One is a ‘hard inquiry’, and the other is a ‘soft inquiry’. When any person applies for a new personal loan, home loan, credit card or any other similar kind of credit, a ‘hard inquiry’ is generally initiated on their credit profile. This inquiry assesses the individual applicant's creditworthiness, repayment history and financial wherewithal to make timely repayments.

Several hard checks can, therefore, bring down credit scores and damage credit profiles. A ‘soft inquiry’, on the other hand, is different; this kind of inquiry generally takes place when an individual just checks their credit profile and in other similar cases where the profile is not analysed intensively by lenders for clearing loans. Soft inquiries do not affect an individual's credit profile or credit score.

This calls for consistently monitoring one's credit health before applying for new debt. Ask questions such as "How many loan applications have you made recently?"

This will help an individual avoid several hard checks in a short period. Understand the conceptual differences between the two to make informed borrowing decisions. Therefore, an understanding of the concepts of hard and soft inquiries can help an individual plan their finances more effectively.

Let us now look at the concepts in a bit more depth.

What is soft credit inquiry?

A soft credit inquiry, also known as a soft credit check, is a review of an individual's credit profile that does not affect the credit score. It is commonly triggered when consumers check their own credit report, when lending institutions assess eligibility for pre-approved loan or credit card offers. It can also be triggered when employers conduct background verification (BGV) or when financial institutions review existing customer accounts.

Nicky Sehwani, CBO, InstaMoney, explained this concept, saying, "A soft inquiry is a credit check that does not impact an individual's credit score and is typically used for self-assessments, pre-approved loan offers or verification purposes. Regularly reviewing your credit report through soft inquiries helps consumers stay informed about their credit health, identify discrepancies early, and make better-informed borrowing decisions with confidence."

Soft inquiry at a glance

Why does understanding soft inquiries matter?

A soft inquiry encourages individuals who manage any kind of credit or loans to regularly check their credit profiles and the loans listed in their names to ensure discrepancies are avoided.

If one has many hard checks on their profile due to recent loan applications, it is a sign to slow down and plan future borrowing differently. It is a way for one to continue improving and bringing positive changes to their borrowing behaviours. In this way, these metrics can be immensely helpful in the long run.

When you send too many credit request applications, this can temporarily bring down your score, making it tough for you to secure loans on lucrative terms.

This is essentially the significance of understanding basic credit-related concepts and the fundamental difference between a ‘hard check’ and a ‘soft check' on your profile.

As credit awareness grows and technological advances make borrowing easier, having a proper financial plan, a borrowing vision, and a repayment strategy can go a long way toward ensuring that credit-related decisions remain rational.

It is prudent to consult a certified financial advisor before applying for any new credit cards or loans.