Hard Inquiry vs. Soft Inquiry: How Each Impacts Your Loan Options
If you’re considering a personal loan, understanding the difference between hard inquiry vs. soft inquiry is crucial before you apply. A hard credit inquiry can affect your credit score since it’s generally associated with applying for new credit. However, a soft credit inquiry does not affect your credit score.
This distinction matters when you’re checking rates, exploring loan options, or moving forward with a loan application. Tower Loan is here to help you understand credit checks and the personal loan prequalification process so you can make the best financial decision.
Hard Inquiry vs Soft Inquiry: Quick Comparison
| Hard Inquiry | Soft Inquiry | |
| Definition | A credit report review generally associated with an application for new credit | A credit report review that does not affect your credit score |
| Common trigger | Applying for a personal loan, credit card, mortgage, or auto loan | Checking your own credit, account reviews, or some prequalification processes |
| Loan process | Typically occurs during or after a formal application | May occur while exploring or prequalifying for credit |
| Effect on credit score | May affect your score | Does not affect your score |
| Who can see it | May be visible to lenders reviewing your credit report | Generally visible only on consumer-facing reports |
| How long it may appear | Generally up to two years | May appear on your consumer report |
| Examples | Formal personal loan or credit card application | Checking your own credit or receiving a prescreened offer |
| What it means for loan options | Indicates a formal credit application and may affect scoring | Can help you explore potential options without affecting your score |
What Is a Credit Inquiry?
A credit inquiry is a request to review information in your credit file for a specific purpose. The Consumer Financial Protection Bureau (CFPB) explains that inquiries generally fall into two categories: hard inquiries and soft inquiries.
Your credit file contains information about your credit accounts, payment history, and inquiries. Lenders use credit reports to evaluate your financial background when deciding whether to extend credit and what terms to offer.
What Is a Hard Inquiry?
A hard credit inquiry, sometimes referred to as a hard pull or hard credit check, occurs when you apply for new credit and a lender reviews your credit report. Applications for installment loans, credit cards, mortgages, and auto loans can trigger a hard inquiry.
Does a hard inquiry affect your credit score? Yes, it can, but the impact is temporary.
You’ll usually know about a hard inquiry when you complete an application; however, giving your permission is not the only factor that distinguishes between a hard inquiry vs. a soft inquiry.
How Long Does a Hard Inquiry Stay on Your Credit Report?
A hard inquiry can remain on your credit report for up to two years. However, the time it stays on your report differs from the period a particular credit-scoring model considers.
According to FICO, hard inquiries typically stay on credit reports for up to two years, but FICO scores consider only inquiries from the past 12 months.
How Many Hard Inquiries Are Considered Too Many?
There is no universal number of hard inquiries that’s considered “too many” for every borrower, but multiple recent applications for unrelated forms of credit can impact your credit profile. Yet, legitimate comparison shopping shouldn’t prevent you from researching different loan options.
FICO provides special rate-shopping treatment for mortgages, auto loans and student loans. However, personal loans don’t receive the same treatment under FICO scoring models, so be mindful that multiple personal-loan applications may be treated differently.
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What Is a Soft Inquiry?
A soft credit inquiry, also known as a soft pull or soft credit check, is a review of your credit information that does not affect your credit score. Examples include checking your own credit report, some personal loan prequalification processes, prescreening for credit offers, and some employment or insurance screenings.
Soft inquiries may appear on your credit report, but lenders reviewing it to make a loan decision can’t see them.
Can a Soft Inquiry Affect Loan Approval?
A soft inquiry doesn’t affect your credit score, but that doesn’t mean prequalification guarantees approval. Personal loan prequalification is an initial estimate based on the information available at the time and can provide estimated loan terms.
However, those figures can change when you submit a formal application, and the lender verifies the information. Even after you are prequalified for a loan, a lender may request additional information to decide whether to approve your application and what rate and terms are available.
When Do Hard and Soft Inquiries Happen During a Loan Application?
- When you check your own credit
- When you check rates or prequalify for a loan
- When you submit a formal loan application
- During the final underwriting process
Lenders may consider your credit history, income, debt payment obligations, and other factors when you seek a personal loan. Check out Tower Loan’s Prequalification Guide to learn more about the difference between exploring possible options and completing a formal application.
How Hard and Soft Inquiries Can Affect Your Loan Options
The practical difference between a hard inquiry vs. a soft inquiry comes down to when you’re simply exploring your credit and when you are formally applying for credit. Soft inquiries let you explore loan options without impacting your credit score. The result may be prequalification, which is an estimate and does not guarantee a loan or specific terms.
Meanwhile, a hard credit inquiry may affect your credit score and is visible to lenders who review your credit report. It typically occurs when you move from exploring your options to officially applying for new credit.
In addition to credit inquiries, lenders may also evaluate your credit history, income, existing debt payments, the requested loan amount, repayment term, and other eligibility requirements before making a lending decision. Borrowers should consider the annual percentage rate (APR), monthly payment, repayment period, fees, and total borrowing before settling on a loan.
Bottom Line: Hard Inquiry vs Soft Inquiry
The main difference between hard inquiry vs. soft inquiry comes down to when and why your credit information is being reviewed and whether the inquiry can affect your credit score. Hard inquiries are generally tied to formal applications for new credit. They may affect your credit score, while soft inquiries don’t affect your score and are typically used for prequalification or to check your own credit.
Before moving forward with a loan application, ask lenders which type of credit inquiry they will use. At Tower Loan, we encourage prospective borrowers to explore all available options and compare rates before deciding whether to complete a loan application online or at a local office.
FAQ Regarding Hard Inquiry vs. Soft Inquiry
What is the main difference between a hard inquiry and soft inquiry?
A hard inquiry is associated with a formal application for new credit and may affect your credit score. A soft inquiry doesn’t affect your credit score and occurs during certain prequalification processes or when you check your own credit.
Does applying for a personal loan cause a hard inquiry?
Completing a personal loan application can result in a hard inquiry, but the process depends on the lender; understand the details before applying.
Does checking rates or prequalifying hurt your credit score?
Generally, no and at Tower Loan, our online prequalification process uses a soft credit check that won’t affect your credit.
How many points can a hard inquiry lower a credit score?
There is no guaranteed number of points lost, as a hard inquiry’s effect varies depending on your individual credit profile and the scoring model used.
How many hard inquiries are too many?
There is no universal number for “too many” hard inquiries, as the impact depends on your overall credit profile, scoring model, and the type of credit you seek.
How long does a hard inquiry stay on a credit report?
Hard inquiries can remain on a credit report for up to two years. However, FICO’s scoring model generally considers only hard inquiries from the past year.
Can lenders see soft inquiries?
Soft inquiries may appear on the credit report that you personally see, but lenders can’t typically see them while reviewing your report to make a credit decision.
Do multiple personal loan inquiries count as one?
The FICO scoring model typically considers each personal loan application as a separate hard inquiry. However, the VantageScore model considers all inquiries within a 14-day window as one.
Can you remove or dispute an unauthorized hard inquiry?
Yes, if you see a hard inquiry you don’t recognize, review your credit report and contact the company to find out why it appears. If you believe it is unauthorized or inaccurate, you can dispute it with the credit reporting company and the company that reported it.