Lenders check the credit score when you apply for a loan or credit card. A credit inquiry is a process where an authorised institution or individual checks the credit history or credit report.
Several details are present in the credit report such as the number of loans that have been availed, the number of credit cards you hold, and if payments have been made on time. Lenders check the credit report before providing a loan or credit card.
The two types of credit inquiries are soft inquiry and hard inquiry. Permission is required to make a hard inquiry, while no consent is required to make a soft inquiry.
Soft Credit Check
In the case of a soft inquiry, limited information is available. Soft inquiries will not impact the credit score and may not be present on the credit report. Lenders make a soft inquiry to check your credit score without your consent.
In case only the credit score is checked, it will be considered a soft check. Checking the credit score will help the lender in knowing whether you are eligible for a loan or credit card. Since there are two different types of inquiries, you can ask the lender about the check that is being done.
Hard Credit Check
A hard credit check is also called as a hard inquiry and is done by lenders before a loan is provided. Hard inquiries will affect the credit score and in case any loan or credit card application is rejected, the score will fall.
In case you apply for various loans or credit cards at the same time, lenders will consider that you are in financial trouble and may not provide one Apartment rental applications, personal loan applications, education loan applications, auto loan applications, and home loan applications are examples where hard inquiries are done.
Difference between Soft Inquiry and Hard Inquiry
Some of the main differences between a soft inquiry and a hard inquiry are mentioned in the table below:
| Soft Inquiry | Hard Inquiry |
|---|---|
| Credit score will not be affected | Credit score will be affected |
| Can be done without consent | Consent is required |
| Will be done in the case of any pre-approved loans or to check the credit score | Will be done when you apply for a loan or a credit card |
| May not be displayed on the credit report | Will be displayed on the credit report |
| May remain on the credit report for up to two years | May remain on the credit report for up to two years |
Things to Consider Before an Inquiry
Since a hard inquiry will impact your credit score, you can make a soft inquiry to check the credit score. This will help in knowing whether you will be eligible for a loan. In case your credit score is low, the application will be rejected, or the loan will be offered at high interest rates. You can check with the lender to know what type of inquiry will be done. It is important that minimal hard inquiries are done as your credit score will fall.
Even though both soft and hard inquiries are done to check whether loans and credit cards can be offered, hard inquiries will impact your credit score. It is important that you have a good credit score before applying for a loan. It is also vital that you know the difference between the two types of inquiries before applying for a credit card or loan.
