The Difference between a Soft and Hard Credit Check and If It Hurts Your Score

hard credit checkWhen most people receive their credit reports they are shocked at the score they have been given because they don’t know the difference between a hard credit check and a soft one. They quickly go through their normal checklist of things they didn’t do and find that or at least imagined their credit rating should have been higher.

 

Truth is, people do not realize that the credit they have with certain companies can bring down their credit rating every once in a while. How? Well, these firms every now and then do a random check on your credit and you don’t need to be told that whenever an inquiry is performed on your credit, points are taken away. How many, depends on many factors.

The point is that every time a creditor puts their hands into your credit, points are removed. I know, it’s a horrible experience. Now the question comes up why and how can they do that? Now heads up, we all must realize that our credit is very important. Nevertheless, we should always try to increase our credit score at all times. The benefits of having a higher credit score are infinite. I mean lower interest rates, larger lines of credit etc. We all could use a boost in our credit, as nobody is perfect. Okay, let’s talk about what actually effects your credit score; more precisely, the differences between hard and soft credit checks.

When companies perform credit checks, they fall into two categories. One type of credit check is known as a soft credit check and the other a hard credit check. Each time you request a credit card, or open an account at a store, or apply for a loan of any type, you have to give permission to the creditor to check your credit report. But are aware that the check could negatively hurt your credit score? A check happens when another party assesses your credit history and credit score. A hard check can effect your credit score negatively; a soft credit check most often than not have little to no effect. A soft credit check can be performed anytime and without your permission. So basically, your creditor can pull a soft check on your credit at anytime. A hard credit  check has to be performed with your permission and consists of a more comprehensive credit check when compared to a soft credit check. This is carried for example when you try to open a new account.

A Soft versus a Hard Credit Check
A soft inquiry (also known as a soft credit check or pulls) occurs under the following premises:
• When you request it yourself (but remember that requesting credit reports may be free; credit scores are not.)
• Initial credit checks by credit card companies when starting a new franchise. (This is when you receive those annoying mail for new credit cards.)
• Initial credit checks by loan companies for pre-approval of loans.
• Employer check when applying for a job, or in consideration for a promotion, etc.
• Insurance and credit card companies periodic reviews for ongoing credit.

A Hard Credit Check or inquiry can actually hurt your credit score negatively. It occurs under the following premises:
• Application for new credit cards or accounts.
• Requests to activate pre-approved credit cards (those cards that come in the mail that you decide to activate.)
• Activation of new cell phone contracts (think twice when you decide to change plans.)
• Opening a new checking or savings account with some banks and credit unions.

Steps To Reduce Hard Inquiries:
Increasing one’s credit involves reducing hard inquiries/checks that can negatively affect your score. Try as much as possible to avoid signing up for a store credit card. These promotions are everywhere and are directed at consumers who are nonchalant about their spending habits. Signing up for these cards no matter how few can negatively affect your score.

Pay off your debts regularly and avoid deals that guarantee “no money down for the next six months.” Scoring agencies often consider these deals to be “new credit” so they can stay on your report for a long time. The interest rate can also rise drastically and may lead you into more debt trap.
When you review your credit report, you will obviously see entries for both soft and hard credit checks. Check for any irregularities in the hard credit checks. If there is, promptly contact the concerned company and have them remove the check (also see if the effect on your credit score is removed). On a final note, keep a hard credit check to a minimum.