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How Credit Inquiries Affect Your Credit

May 21, 2023

To understand the impact of credit inquiries on your credit, it’s essential to distinguish between “soft” and “hard” credit pulls. These inquiries can significantly influence your credit health and your ability to secure favorable financing options. In this blog post, we’ll delve into the differences between soft and hard credit pulls and how they affect your credit score differently.

What Are Credit Inquiries?

Credit inquiries are requests made by lenders and creditors to check your credit report and evaluate your creditworthiness. These inquiries are typically initiated when you apply for credit, such as a car loan, credit card, mortgage, or personal loan. Understanding the types of credit inquiries is key to managing your credit effectively.

Soft Credit Pulls

Soft credit pulls, often referred to as “soft inquiries” or “soft checks,” are inquiries that do not impact your credit score. These inquiries are typically made for informational purposes and do not involve a thorough review of your credit history. Common examples of soft credit pulls include:

1. Checking your own credit: When you request your own credit report or score, it’s considered a soft inquiry. This allows you to monitor your credit without any negative consequences.

2. Pre-approval offers: Credit card companies and lenders may perform soft pulls to pre-approve you for offers. These offers are based on limited information and do not affect your credit score.

3. Background checks: Employers and landlords may perform soft credit checks as part of their screening process. Again, these inquiries do not impact your credit score.

Soft inquiries are a normal part of financial life and are harmless to your credit standing. They serve as a way for you to keep tabs on your financial health without any detrimental effects.

Hard Credit Pulls

Hard credit pulls, also known as “hard inquiries” or “hard checks,” have a more significant impact on your credit score. These inquiries occur when you apply for new credit, such as an auto loan, credit card, or mortgage. Lenders use hard pulls to assess your creditworthiness thoroughly. Key points about hard inquiries include:

1. Credit applications: When you apply for an auto loan, the lender will typically perform a hard credit pull to assess your credit history and determine the risk of lending to you.

2. Impact on your credit score: Each hard inquiry can cause a temporary dip in your credit score, typically by a few points. Multiple hard inquiries in a short period can signal to creditors that you’re seeking a lot of new credit, which may raise concerns about your financial stability.

3. Duration on your credit report: Hard inquiries stay on your credit report for two years, but their impact on your credit score diminishes over time, especially if you manage your credit responsibly.

Managing Credit Inquiries

Now that you understand the distinction between soft and hard credit pulls, here are some strategies to manage them wisely:

Limit unnecessary credit applications: Avoid applying for credit indiscriminately, especially if you’re planning to finance a car or make a significant financial move. Each hard inquiry can add up and potentially hurt your credit score.

1. Monitor your credit regularly: Stay vigilant by checking your credit report for accuracy and watching for any unauthorized hard inquiries.

2. Shop for credit strategically: When shopping for an auto loan, aim to do so within a relatively short timeframe, typically around 14 to 45 days. Multiple auto loan inquiries within this period are often treated as a single inquiry, minimizing the impact on your credit.

3. Build and maintain good credit: A strong credit history can help offset the negative impact of hard inquiries. Pay bills on time, keep credit card balances low, and avoid unnecessary credit applications to maintain a healthy credit profile.

In the world of automotive financing, understanding the nuances of credit inquiries is crucial. Soft inquiries serve as a useful tool for monitoring your credit health, while hard inquiries can impact your credit score when applying for new credit. By being mindful of the types of inquiries and implementing responsible credit management practices, you can protect and improve your credit score, ensuring you’re in the driver’s seat when it comes to securing favorable auto financing options.

Pre-qualifying here at CreditYES only requires a soft credit pull, meaning it won’t afect your credit score in the slightest. Get Pre-Qualified today!