Consumer Comeback Blog

Understanding The Difference Between A Hard And Soft Credit Report Pull

Understanding hard pulls and soft pullsAs most consumers know, every time a person applies for new credit, one of his or her credit reports is pulled from one of the three national credit reporting bureaus that maintain our credit reports. TransUnion, Experian, and Equifax maintain most Americans’ credit reports in their proprietary systems and routinely update borrowing information depending on information that is provided to them by a consumer’s current and future creditors or lenders. But, did you realize that there are two types of credit report inquiries? One has the potential to damage your credit score if abused, but the other one does not.

What Is A Hard Credit Pull?

A hard credit pull on a person’s credit report is what we normally associate with a lender checking our credit report and credit score. Hard credit report pulls are initiated by the consumer when they apply for a new loan, additional credit card, or even apply for new cell phone services or utilities. In most cases, a person’s credit score will decrease slightly with each hard credit pull. The credit bureaus view a consumer’s request for more credit to be granted in their name as a red flag that a borrower could become an increased risk for default. And, that is why a person’s credit score slightly decreases with the application for a new loan or credit card. If a person applies for a lot of new credit limits over a short period of time, his or her credit score will decrease a decent amount. The credit bureaus do give consumers a small window to shop around for the best car loans and mortgage rates by only penalizing their credit score for the first hard credit pull when it is believe that they are actively shopping for the best interest rate on a large purchase.

What Is A Soft Credit Pull?

A soft credit check or soft credit pull is a check that does not affect a borrower’s credit score when it is made. A soft credit pull is logged in a person’s credit history by the credit bureau, but the soft credit pull is only visible on a credit report only to that person and not potential lenders. A soft credit pull often happens without the consumer knowing about it and can occur for a countless number of reasons such as those credit card offers we all receive in the mail, a check from a new employer, and even verification by a bank of your identity. A consumer can check his or her own credit report as often as they want with no negative effects to their credit score.

Why Consumers Need To Know The Difference Between The Two

You need to know the difference between a hard and soft credit pull of your credit report to protect your credit score from potential damage. Unfortunately, the United States is still a country that revolves around using debt for large purchases such as a new car or home. If a consumer wants to be able to borrow money for these purchases, he or she must ensure that the credit score is as high as it can possibly be. Many Americans do not know that requesting their own credit report will not hurt their credit score. More people should routinely request their credit reports to ensure that their information is accurate and they are not the victim of identity theft.

Understanding the intricacies of a how our credit scores are calculated can make us better and smarter consumers. While adding credit and keeping our credit scores as high as possible is not the main goal of financial independence, accurately maintaining and actively monitoring our credit report is an important piece to our future financial puzzle if we want to include new debt for a home or other large purchase in our future. The more we know and understand how the three credit bureaus look at us will enable us to make better informed financial decisions in our lives.

Photo Credit: Flickr – billselak