The Difference Between Hard and Soft Credit Checks

When a credit check is performed, it can be either a hard or a soft credit check.

Soft Credit Checks

When you check your own credit score, it is considered a soft credit check. Lenders, businesses, and leasing agencies may also use soft credit checks for loan pre-approval or as part of a background check. Your approval is not required for a soft credit check to occur. Soft credit pulls are visible only to you, and will not affect your credit score.

Examples of Soft Credit Checks

• Checking your own credit
• Pre-Approval checks for payday loans
• Background checks (employment verification)

Hard Credit Checks

The alternative to a soft credit check is a hard credit check. Also known as hard pulls or hard inquiries, this type of check may affect your credit score. Generally, its effect on your score could be negligible or negative. 

Hard credit checks are often used by lenders. The lender could be a credit card issuer or a financial institution like a bank. They use the hard credit check to review your credit score and credit history before extending you a new line of credit or issuing a loan. 

Some lenders may only use one of the three major national credit bureaus, Equifax, Experian, and TransUnion. Others may perform a check with all three.

A hard credit check is a routine part of an application for a mortgage, credit card, or other large loans. Your approval is required for a hard credit check to be performed. 

A Single Hard Credit Check vs Multiple Hard Credit Checks

A single hard credit check, such as in the case of applying for a mortgage with a financial institution, is unlikely to severely harm your credit score. Hard credit checks usually remain on your credit history for two years. After this time they drop off your record. 

The damage from a single instance of a hard credit check may decrease or be negligible even before the record being omitted from your credit history. One or two hard credit checks may result in the loss of a few points. At most, a person will typically lose five points from their FICO score.

However, multiple hard credit checks may do more damage to your credit score. Multiple hard credit checks in a short time frame may label you as high-risk. Lenders may view you as a customer in need of cash and someone willing to take on large amounts of debt.

In most cases, you should avoid applying for many types of credit (credit cards, loans, etc) around the same time. While there is not an exact number of hard checks required to damage your credit score, more than two in a short period is ill-advised. 

Hard Credit Checks and Rate Shopping

In many instances, multiple hard credit checks for select types of loans may not be as detrimental. These loan types are student loans, mortgages, and auto loans. When you apply for many types of loans in these categories you will likely be assumed to be rate shopping. 

The FICO model views all of these types of inquiries within 45 days as a single inquiry. Other models may do the same, albeit for a shorter time. VantageScore reports all checks within 14 days as a single inquiry. 

Examples of Hard Credit Checks

• Credit card applications
• Student loan applications
• Mortgage applications
• Car loan applications
• Apartment or housing rental applications
• Personal loan applications

Payday Loans and Credit Checks

A payday loan can be considered a personal loan, but payday loans are generally short term and for a smaller amount. Therefore, payday loan lenders generally do not use hard credit checks. Instead, soft credit checks are used. As a result, applying for a payday loan is unlikely to impact your credit score.