Soft and Hard Credit Checks: What Each Loan Step Pulls

Two kinds of credit check

Every time someone gets a copy of your credit report, the credit bureau records an inquiry. The Consumer Financial Protection Bureau sorts these into two groups, and the difference matters because only one group can move your scores.

The label the lender uses does not decide which kind it is. What counts is the purpose: an estimate before you apply, or a credit decision on an application you submitted.

Prequalification: the soft step

Many online lenders, banks and credit unions let you check a likely rate and amount before you apply. You enter your income, housing cost and the amount you want, and the lender matches that against a soft look at your report. The result is an estimate, not a commitment: the final rate can change once the lender verifies your income and reads the full report.

• Look for the statement that checking your rate will not affect your credit score. If the page does not say it, ask before you submit.
• Read the consent box. Some forms ask you to agree to a soft pull now and a hard pull later in the same click.
• Treat a request form as a request. If you use the LendCedar request form, the lenders and brokers who receive it decide how they check credit. Ask any of them which kind of inquiry a step uses.

Prescreened offers that arrive by mail or email are also built on soft data. Federal law lets a credit bureau sell lists of consumers who meet a lender's criteria only for a firm offer of credit, and the bureau may not show those inquiries to other lenders. You can opt out of prescreened offers through a notification system the bureaus must run with a toll-free number: an opt-out made that way lasts five years, and one confirmed with a signed form lasts until you cancel it.

The full application: the hard step

When you submit a complete application, you give the lender a legal reason to get your report. The Fair Credit Reporting Act allows a credit bureau to furnish a report to someone who intends to use it in a credit transaction involving you, which an application you started is. The lender then sees your full file, including balances, payment history and other recent inquiries.

A hard inquiry remains visible in your file for as long as two years. According to FICO, its scores count an inquiry for only one year, and for most people one extra inquiry takes less than five points off. Several hard inquiries close together tell a lender you are seeking a lot of new credit at once, which can weigh more than the points themselves.

Shopping for a rate without stacking inquiries

FICO says that for loans people commonly shop for, such as mortgages, auto loans and student loans, its scores group the inquiries that fall inside one shopping window and count them once, and ignore such inquiries from the 30 days before the score is calculated. The period is 14 days in older versions of the formula and 45 days in newer ones. FICO's page does not list personal loans among these types, so plan as if each personal loan application can count as a separate inquiry.

1. 1 Check your own reports first so you know what lenders will see; checking your credit first explains how.
2. 2 Prequalify with three or four lenders on the same amount and term, and write down each estimated APR.
3. 3 Apply in full only with the lender whose estimate you would accept, and keep a second choice in reserve.
4. 4 Apply to the second lender soon if the first one declines or changes the terms, while your documents are still current.

What can go wrong and how to check

The most common surprise is a check you thought was soft showing up as hard. That usually means the form you completed was an application, not a rate check. Another is an inquiry from a company you never contacted, which can be a sign that someone applied in your name.

Look at your reports a few weeks after you apply. The nationwide credit bureaus let you get free reports weekly at annualcreditreport.com. If you find a hard inquiry you did not authorize, contact the lender that made it and dispute it with the bureau. Funditia, our sister site, explains how hard and soft inquiries fit into a credit score in more detail. If your application is turned down, the lender owes you a notice with the reasons; if you are denied covers what it must say.

Questions people ask