May 13, 2022
“I need to check your credit.”
It’s a statement you’ve undoubtedly heard if you’ve ever applied for a credit card or tried to take out a loan.
But do you really know what it means to have your credit pulled? Or why lenders do it?
Truth is, credit checks are part and parcel of lending, and the more you know about what they are and how they’re used, the better control you’ll have over your personal finances.
What’s a Credit Check?
A credit check — also known as a credit inquiry or credit pull — is when you or a company request access to your credit report through one or more of the three national credit bureaus: Experian, Equifax, and TransUnion. Credit inquiries are classified as “soft” or “hard” based on how the information in your credit report is being used, which can also affect your credit score.
What’s a Soft Credit Check?
A soft credit check, or soft inquiry, is simply a request to review your credit report. Think of it as a “background check” of your credit history.
Do Soft Credit Checks Affect Your Credit Score?
Since soft inquiries aren’t linked to applications for credit, they don’t affect your credit score in any way. However, records of all soft pulls are listed on your credit report as a way for you to keep track of who’s asked to see your credit information.
So, if a legitimate company asks to check your credit in order to, say, pre-qualify you for a loan, make sure they’re doing a soft pull. Otherwise, your credit score will take a temporary hit from a hard inquiry.
What Does a Soft Credit Check Show?
Soft credit checks show most of the information that appears on your full credit report. This includes current and closed credit accounts and loans, your payment history, and any tax liens or bankruptcies in your name.
What Information Is Needed for a Soft Credit Check?
You don’t need a lot of information to make a soft credit check. Typically, all it takes is:
- Social Security number
- Date of birth
- Lenders who want to pre-qualify you for credit
- Existing creditors you have accounts with
- Debt collection companies to use for collecting payment
- Insurance companies when underwriting a policy
- Employers or prospective employers (with your permission)
- Rental companies or landlords
- Phone and utility companies
- Some government agencies
The company must tell the credit bureau why they’re asking for your credit report, and if the reason qualifies, they can only use the information for that purpose.
What’s a Hard Credit Check?
A hard credit check, or hard inquiry, is a request to review your credit report that a lender makes when you apply for new credit or ask for a higher spending limit on an existing account.
How Much Does a Hard Credit Check Affect Your Credit?
Generally, a hard credit check will temporarily lower your credit score by five points or less. This may not seem like much, but the negative marks can make it more difficult to be approved for additional credit — or to qualify for the best interest rates — until your score rebounds.
Given the effect it can have on your credit score, you should avoid making multiple hard inquiries within a short period of time. Many lenders view this as a red flag that you’re relying too heavily on debt to make ends meet.
That said, it’s common to get pre-approved for more than one loan when you’re buying a car or a house. Although each pre-approval would normally trigger a hard credit check, multiple hard inquiries requested within 14 days of each other are usually treated as a single pull on your credit, which limits the negative impact to your credit score.
How Long Do Hard Credit Checks Stay on Your Credit Report?
A hard credit check will remain on your credit report for two years. However, the temporary credit score drop caused by a hard inquiry should readjust in 12 months or less, provided you stay current with your payments and don’t apply for more credit.
What Does a Hard Credit Check Show?
Hard credit checks show all of the information that appears on your credit report. While the reports vary slightly among the credit bureaus, they all contain:
- Current and closed credit accounts, as well as credit totals, balances, repayment records, dates of the accounts, and names of lenders
- Public records such as liens, foreclosures, bankruptcies, and civil suits
- Credit inquiries requested over the last two years
Collectively, this information helps lenders decide whether they’re comfortable extending you credit or loaning you money.
Can a Hard Credit Check Be Disputed?
Yes, a hard credit check can and should be disputed — in certain situations.
If you give a lender permission to make a hard pull, you can’t have it removed from your credit report simply because you don’t like it being listed. You’ll have to wait for the inquiry to naturally fall off your credit report after two years.
On the other hand, if a hard pull that you didn’t approve appears on your credit report, you should definitely contest it. This could indicate that someone stole your identify and tried to open an account fraudulently in your name.
If you do find unauthorized hard inquiries or other errors on your credit report, you need to notify the credit bureau that ran the credit report:
You should also contact the lender or company that requested the credit check to let them know you didn’t approve it.
Once the credit bureau receives your letter detailing the inaccuracy, it has 30 days to investigate and respond.
Types of Soft and Hard Credit Checks
Generally speaking, credit checks are classified as either soft or hard pulls based on who requests the inquiry and why.
Soft Credit Checks
The most important person who can request a soft check of your credit is you. In fact, you should review your credit report at least once a year to ensure all of your financial information is accurate and correct any mistakes you happen to find.
It’s also common for utility providers and insurance companies to perform a soft inquiry when you’re signing up for new service or coverage. They use the information to quickly determine how likely you are to pay your bills on time.
Credit unions and banks where you have accounts routinely make soft pulls on your credit to see how you’re managing debt. The same goes for credit card companies and lenders before sending all those pre-approved loan and credit card offers that wind up in your mailbox.
It’s even becoming increasingly common for employers to request a soft credit check as part of their pre-hiring process. Some companies believe that the way you handle money (and debt) provides insights into how you’ll perform on the job.
Hard Credit Checks
Unlike soft credit checks, you have to give permission before anyone can request a hard pull on your credit report.
That means representatives of credit unions, banks, online lenders, credit card companies, and, in some cases, rental agencies are the only people who should be asking to make a hard inquiry — after you’ve told them it’s OK to do so.
|Common Reasons for Soft Inquiries||Common Reasons for Hard Inquiries|
|Personal credit checks||Credit card applications|
|Pre-employment background checks||Loan applications (auto, student, personal)|
|Pre-approved credit offers||Mortgage applications|
|Pre-rental screenings||Line of credit applications|
|Utility service requests||Rental applications|
Credit checks provide a gateway to your credit report, which contains important — and potentially sensitive — financial data.
By understanding the distinction between soft and hard inquiries, you can make informed financial decisions and regulate who ultimately gains access to your credit information.