Soft credit check vs. hard credit check: what’s the difference?

You're ready to hit the button, and suddenly you stop. Should I apply for a new loan? Or should I wait? You read something about your credit getting dinged. 

You’re right. Sometimes credit checks can hurt your credit score. Let’s look at how credit checks, aka ‌credit inquiries or credit pulls, work.

What is a credit check?

A "credit check" means looking at your credit history. Credit checks are also called inquiries.

When you apply for credit, the lender needs to know whether you qualify. That’s where a credit check comes in. “Applying for credit” means applying for any type of account where the company might be taking a financial risk on you. Here are some examples where applying would normally require a credit check:

• Personal loan

• Auto loan

• Mortgage

• Home equity loan

• Medical or veterinary care loan

• Credit card 

• New bank account

• Utility or cable TV service

• Cell phone service (not prepaid)

• Rental home

• Property insurance

To check your credit, the lender will get a copy of your credit report from one or more of the three major credit reporting bureaus–Equifax, Experian, and TransUnion. Your credit report shows your name and address, as well as information about your credit accounts and any recent applications you’ve made for new credit.  

Soft credit check

There’s no harm done by a soft credit check because it doesn’t affect your credit score. 

What is a soft credit check?

A soft credit check or soft inquiry occurs when someone checks your credit but you haven’t applied for credit.

How does a soft credit check work?

In a credit check (soft or hard), someone looks at your credit report. Your report shows the number and types of credit accounts you have, your payment history, the amount of available credit you’re using (your credit utilization), and how long you’ve had your accounts. It also shows recent inquiries or credit checks. Soft credit checks mean someone has looked at your credit history but you haven’t applied for anything.

How does a soft credit check affect your credit?

A soft credit check doesn't affect your credit score. However, they do show up on your credit report. Your credit report includes a section that lists all of the entities that have checked your credit within the past two years. 

Hard credit check

When you apply for a credit card, personal loan, or other type of credit account, the lender will do a hard credit check. 

What is a hard credit check?

A hard credit check means you applied for a form of credit and the lender or creditor needs to review your credit report as part of the application process.

How does a hard credit check work?

Hard credit checks work just like soft credit checks, as described above. The entity checking your credit is looking for indications that you are likely to pay your debts. 

The difference with hard credit checks is that they do affect your credit score (usually). 

How does a hard credit check affect your credit?

A hard credit check means you’ve applied for credit, and it’s likely to cause your credit score to dip. Here’s why. In a very general sense, applying for credit could mean that you need financial support of some kind. If you were to apply for many credit accounts in a short span of time, that could mean you’re in (or soon to be in) a financial crisis. 

One hard credit check will probably knock a few points off your score. Multiple hard credit checks, especially within the past 6-12 months, could cause your next application to be rejected. 

Hard credit checks stay on your credit report for two years. They affect your credit score for one year, but the effect decreases over time. 

How would a hard credit check not affect your credit?

Not all hard credit checks affect your score. If you’re shopping for a mortgage, a car loan, or a student loan, those inquiries are treated differently. The credit reporting agencies know what kind of credit account you’re applying for because all credit checks are coded. For those types of applications, you're allowed to shop for rates without excessive harm to your credit score. 

Here’s how it works.

First, a credit check in those categories is completely ignored for 30 days. It won’t show up on your report or affect your score. It’ll show up after 30 days, but then all credit checks within 45 days (with the same code) are treated as a single credit check where your score is concerned. 

So you can apply for one car loan or 100 car loans, and as long as you do so within 45 days, only one credit check will affect your score.

Personal loans don’t have a rate shopping window, which is why many lenders offer to do a soft credit check to help you compare options before you submit a full loan application.

Examples of hard and soft credit check inquiries

 Examples of soft credit checks include:

• An employer checks your credit as part of your job application 

• A credit card issuer checks your credit to prescreen you for an offer

• A lender offers to do a soft credit check so you can find out what rate you might qualify for

• Your credit card issuer checks your credit to decide whether you qualify for a higher credit limit 

• You apply to open a new bank account

• You check your own credit

Examples of situations that usually require hard credit checks include:

• You apply for a credit card 

• You apply for a loan

• You apply to lease a car

• You request utility service

• You get a cell phone (not prepaid)

• You apply for overdraft protection on your bank account

If you apply to rent a home, you’ll have to ask the landlord if they will do a hard inquiry or a soft inquiry. It could be either.

Hard vs soft credit checks

You can look at your credit reports to find out who’s been checking out your credit history. You are entitled to one free copy every 12 months from each of the major credit bureaus–Equifax, Experian, and TransUnion. Access your free reports on AnnualCreditReport.com.