Hard vs. Soft: The Difference Between Types Of Credit Checks

American Investment Planners LLC

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(516) 932-5130 / (866) 932-5130

Whether you are looking to buy a house, lease a car, open a new credit card - essentially anything that requires a loan in some shape or form - lenders will check your credit to determine where you stand as a candidate for their services. When it all comes down to it, that means you need to have excellent credit! However, even if you have a proven track record of paying back the money you've been lent in the past, that doesn't guarantee that your credit score will be through the roof - did you know that credit checks impact your score, and potentially negatively?

In the financial world, there are two types of credit checks - hard and soft. But what's the difference? Below, we cover the basics of each to help you become more familiar with both:

Hard Inquiries

Hard inquiries are credit checks that occur when a potential lender runs and views your credit report to figure out whether or not they will lend to you. According to Credit Karma, these types of inquiries may remain on your credit report for two years. Though they have shown to lower credit scores, over time, the damage that has been done usually repairs itself, allowing your credit score to rise once again. Prior to checking your report in a way that results in a hard inquiry, lenders must let you know they will be doing so - if permission is not granted, you should call your creditor to inform them that the check wasn't authorized. Examples of hard inquiries include:

• Applying for a credit card
• Applying for a mortgage
• Applying for a car loan

Soft Inquiries

Soft inquiries are credit checks that occur when a person or company checks your credit report - think of it as a background check, for example. Unlike hard inquiries, these take place without your permission, but that shouldn't be a concern since they do not affect your overall credit score. Examples of soft inquiries include:

• Checking your own credit score
• Getting pre-approved for a credit card
• Employer background checks

Of course there are some circumstances where what you think is a soft inquiry turns out to be a hard inquiry, which is why it is recommended to always ask the lender to advise you on what type of credit check will be taking place. And remember, since hard inquiries do affect your score, you must be mindful of how often you are opening up new credit cards and applying for new loans - especially if they are done on a whim!

American Investment Planners LLC offers tax planning, estate planning, retirement planning and more to generations of families throughout the United States. More information about the services offered is available at www.americaninvestmentplanners.com.