What does hard pull and soft pull mean? How do they affect your credit?

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Recently, people seem much more interested in applying for new credit than they have in the past.

The number of people who said they were likely to apply for a new credit card in the next 12 months rose from 8.3% in 2020 to 12.0% in 2021, according to a survey by the Federal Reserve Bank of New York .

There’s nothing wrong with applying for new credit if it helps you reach your financial goals, as long as you do it wisely. Whenever you apply for a loan, credit card, or mortgage, you will likely need to undergo a credit investigation – also known as a credit application or credit check – where a lender requests information about your credit history from credit reporting agencies.

Credit applications are a necessary part of applying for new credit, but not all credit applications are created equal. Firm credit inquiries may cause your credit score to drop slightly, while soft credit inquiries have no effect. While you shouldn’t let the prospect of bad credit stop you from applying for the credit you need, being strategic in your new credit applications can help keep your credit score in good shape.

Pro tip

As long as you don’t over-apply for new credit, how you manage your current available credit will affect your credit score far more than any new inquiries. Make sure you always pay your bills on time and in full, and keep your credit utilization rate low.

Here’s what you need to know about hard and soft credit pulls, and steps you can take to minimize their impact on your credit score.

What are hard and soft credit withdrawals?

A credit inquiry, also known as a credit application or credit check, occurs when a creditor requests information about you from one of three credit reporting agencies: Equifax, Experian, and TransUnion.

When you review your credit report, you will see a section on “Credit Applications”. This section will display all credit inquiries that have taken place in the last two years.

There are two main types of credit applications:

  • Hard credit drawdown: Generally, the term “credit draw” refers to a hard credit draw. A hard credit inquiry is when a creditor requests your information after you submit an application for a form of credit, such as a new credit card or mortgage.
  • Soft credit drawdown: Indirect credit checks happen every time someone checks your credit file. If you check your own credit, apply for an apartment, or if an employer performs a background check and reviews your credit, an indirect credit check will take place.

Usually, when a lender plans to apply for soft credit – for example, if you prequalify for a personal loan or a credit card before you apply – you’ll see something in the fine print like “draw flexible credit” or “will not affect your credit score”. If in doubt, you can always check with the lender or institution applying for the credit.

Hard credit drawdown Smooth credit drawdown
when it happens These happen when lenders look at your credit after you apply for a credit card, loan, or other form of credit These happen when you check your own credit, when lenders offer prequalification quotes, or when an employer or landlord checks your credit.
Duration of credit report FICO only considers inquiries from the past 12 months when calculating your credit score, but inquiries remain on your report for two years Can appear on credit report for two years
Impact on credit score Can reduce your FICO score by up to five points No effect on credit score

Hard or soft survey: when are these surveys used?

Credit applications are common, needed for things ranging from getting a loan to applying for an apartment. But not all credit applications are created equal. To protect your credit score, it is important to understand when credit inquiries occur and the effect they may have on your credit.

Difficult requests

Lenders pay close attention to serious credit inquiries on your credit report, says Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling, a nonprofit credit counseling organization. .

“Current credit-scoring algorithms look at whether or not the consumer is looking for additional credit,” Coleman says. “It’s because lenders fear that consumers are potentially overstretching themselves.”

The following scenarios are examples of when you would experience hard credit extraction:

Sweet requests

Informal credit inquiries show up on your credit reports, but they don’t affect your credit score. Informal inquiries may be more common, according to Amy Maliga, financial educator at Take Charge America, a nonprofit credit counseling agency.

“A flexible credit [pull] happens every time someone checks your credit,” says Maliga. “You check your own, an employer does a background check, you get pre-approved for a mortgage, or you get credit counseling like the ones we offer at Take Charge America – a smooth credit application happens. . It is strictly informative.

The following scenarios are examples of when you would have an indirect credit withdrawal:

  • You request a quote from a personal lender, and the lender specifies that obtaining a quote requires a flexible investigation that will not affect your credit
  • You review your credit reports
  • You signed up for a credit monitoring service that checks your credit on a monthly basis
  • A potential employer reviews your credit as part of a background check
  • You take out life insurance

How do soft and hard credit drawdowns impact your credit?

The impact of a credit application depends on the type of investigation that occurs. While soft credit inquiries don’t change your credit score, firm credit inquiries do.

“What can do [hard credit inquiries] scary thing is that they have the ability to negatively affect your credit score,” says Coleman.

A serious credit check can lower your score by up to five points, according to credit reporting company FICO, but the impact depends on your existing credit history.

Credit inquiries — both hard and soft — can stay on your credit report for two years, but that doesn’t mean they’ll lower your credit score all that time. Indirect credit inquiries will not affect your score at all, and firm credit inquiries will affect your credit score for 12 months. However, a firm credit application has less impact on your credit rating as it ages.

“Severe credit pressures can affect your credit score, but this is a short-lived impact,” says Maliga. “Generally, if your credit is in good shape, a small dip isn’t a big deal.”

What to do before a credit check?

Before applying for a new line of credit and agreeing to a credit inquiry, use the following tips to limit the impact a credit inquiry will have on your credit score:

  1. Review your credit report: “Always keep an eye on your credit report,” advises Maliga. “Make sure all serious credit inquiries listed are things you initiated.” If you spot requests to which you have not consented – or if you notice other errors – you can dispute these items with the credit reporting agencies. If they turn out to be fraudulent or the result of an error, the credit bureaus will remove them from your credit reports. You can access your credit reports for free at AnnualCreditReport.com.
  2. Shop using prequalification tools: Lenders who offer prequalification tools give you a convenient way to check your eligibility and possible rates without a credit check. They can be a good way to compare prices without hurting your credit.
  3. Group requests: If you are looking for a rate for a mortgage or a loan, submit your quote requests nearby. “Typically, when someone is looking for a mortgage or car loan, the credit-scoring model looks at similar credit applications within a certain time frame and groups those credits together,” Coleman says. “They are considered as one application, so there is not much impact on the credit score.”
  4. Check the eligibility criteria before applying: Many lenders and credit card issuers list their minimum requirements for borrowers, such as credit score and minimum income, on their websites. By reviewing this information, you can see if you meet their criteria without having to complete an application.
  5. Limit new credit requests: New credit applications affect your credit score, and recent activity accounts for 10% of your credit score. “Don’t submit requests unless you really have a need,” says Coleman. “Don’t submit just to see if you can get a particular credit card.”

Although high credit demand can negatively affect your credit score, the impact is usually quite small and your credit score can recover quickly. What’s more important is how you use your credit once you get it – make sure you always pay your bills on time and in full, and keep credit utilization low on your credit cards.

Don’t let the fear of difficult credit applications keep you from getting the credit you need to achieve your financial goals. By managing your credit wisely and limiting new credit applications to only when you really need a line of credit, you can minimize the reduction in your credit score.

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