The Important Difference Between Hard & Soft Credit Checks

If you’re getting ready to apply for financing of any sort, you’ve probably got some questions about credit—especially if you’ve heard the rumor that simply applying for credit could hurt your credit score. Don’t let this rumor stop you from getting the financing you want. We’ll help you understand the difference between hard and soft credit checks, as well as how they come into play when you apply for an auto loan.

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What Are Hard and Soft Credit Checks?

Any time your credit report is accessed, it’s recorded with a credit reporting agency (the three biggest being Experian, Equifax, and TransUnion). This is technically called an “inquiry,” though you may also hear “check” or “pull.” Inquiries include information about who’s making the inquiry, what it’s for, the date it’s made, and the type of inquiry. There are two types of credit checks or inquiries: soft and hard, which we’ll explain below.

No time to read it all now? Take a quick look at our reference table for the key points.

A quick look at Hard & Soft Credit Inquires
Hard Credit Inquiries Soft Credit Inquiries
Factor in lending decision Yes No
Visible on credit report Yes No
Time on credit report 2 Years N/A
Your permission required Yes No
Can impact credit score Yes No

Soft Credit Checks

Soft credit checks occur when you check your own credit, when your credit is reviewed as part of a background check, or when a company checks your credit to pre-approve you for an offer. A potential employer may run a soft check on you, too.

Soft checks don’t impact your credit score and are typically only visible to you when you review your credit report. Potential lenders can’t see soft inquiries and according to Experian, “soft inquiries are never considered as a factor in credit scoring models.”

Examples of soft inquiries include “pre-qualified” credit card offers, “pre-qualified” insurance quotes, and employment verification.

Hard Credit Checks

Hard credit checks are tied to actual credit applications, usually ones that you initiate. They require your permission and occur when a lender or financial institution checks your credit in order to make a lending decision.

Hard checks stay on your credit report for about two years and can lower your credit score by a few points. This is a key difference between hard and soft credit checks. Most of the time, though, a single hard inquiry won’t play a major role in whether or not you’re approved for financing. Lenders understand that most people compare loan options when buying something as big a house or car.

Still, it’s not a good idea to apply for a bunch of different credit cards and loans at one time. Multiple hard inquiries for different types of credit in a short period of time can signal to lenders that you’re in a financial pickle. They may assume you’re having trouble paying bills, getting ready to rack up debt, or that you’re short on cash—all signs that you could be a risky loan recipient.

Examples of hard inquiries include applications for a mortgage, auto loan, credit card, student loan, personal loan, or apartment rental.

What to Know About Hard Credit Checks & Car Loans

Applying for an auto loan requires a hard credit check. In the long term, applying for an auto loan usually doesn’t hurt your credit score. Most reporting agencies recognize that when people shop for an auto loan, they’re going to compare multiple loan options in a short period of time. That’s why the top three credit reporting agencies (for the purpose of credit scoring) roll multiple auto inquiries into one inquiry on a continuous, 14-45 day cycle.

Remember that hard inquiries are only one factor used in calculating your credit score. There are many others! Your payment history, mix of credit types, length of credit history, and credit utilization ratio could all have a much greater impact on your score.

Now that you know, do you feel like a credit pro? You should! Worries over a hard credit inquiry shouldn’t prevent you from applying for financing when you need it most. A record 107 million Americans have auto loans, reports the Federal Reserve Bank of New York. That’s about 43% of the entire adult population in the US. Put your newfound knowledge to use building your credit score and apply for auto financing today.