You’re being credit checked every time you apply for a credit card, finance a car, or even apply for a new cell phone plan.
But there’s one thing most consumers never learn: one type of credit check won’t affect your credit score, while the other can cost you a few points. The difference all comes down to two words the credit industry uses all the time, but almost never defines for the people it affects the most.
A soft pull is a credit check that will not affect your credit score. A hard pull is a credit check that may decrease your score and will remain on your credit report for up to two years. By understanding the difference between the two, you’ll have a better idea of when and why someone is accessing your credit information.
The Elephant in the Room
According to a June 2023 survey conducted by BadCredit.org, 25.6% of Americans believe that checking their credit score is harming it.
That’s simply not true. Any time you check your own credit score, it’s considered a soft pull.
But because so many consumers believe otherwise, millions of people are avoiding checking their credit reports altogether. If you never check your credit report, you can’t keep track of errors, accounts you didn’t authorize or collection accounts that debt collectors may have placed on your credit report using incomplete or inaccurate information.
Understanding the difference between a soft and hard pull isn’t a fun fact, it’s a knowledge gap that’s preventing consumers from protecting themselves.
What Is a Soft Pull?
How a Soft Inquiry Works
A soft pull, sometimes called a soft inquiry, is a credit check that occurs when you’re not directly applying for new credit. It will create a record on your report that only you can see, and it will not affect your credit score, regardless of which model is being used to calculate it. Soft pulls occur more often than you might realize.
When you access your credit information using a free monitoring service, that’s a soft pull. When you receive a preapproval in the mail from a credit card issuer, the company used a soft pull to review your credit information beforehand. If your credit card company is reviewing your account to determine whether you’re eligible for a credit line increase, this is also typically a soft pull.
Even background checks requested by employers fall into this category.
Under the Fair Credit Reporting Act (FCRA), employers are required to get your written permission before requesting a copy of your credit report, and the request will appear as a soft inquiry on your report (and will not impact your credit score). The copy of your credit report provided to employers doesn’t include your credit score.
Instead, it includes information about the amount of debt you owe, your payment history, and any information available on your public record.
The Expansion of Soft-Pull Preapproval
In recent years, the lending industry has increasingly moved toward using soft pulls for preapproval purposes.
You can check rates and terms for several loans without committing to a formal application (and the subsequent hard pull) with Capital One, Discover, SoFi, Upstart, LendingClub, and LendingTree. Credit Karma provides more than 140 million consumers access to their credit scores, updated weekly, using only soft pulls.
As a result, you can comparison-shop across multiple lenders without affecting your credit score. The auto lending industry is starting to follow suit. One company, Dealer Alchemist, recently launched a tool that offers a soft credit pull as part of the auto dealership process.
For consumers who are rebuilding or have thin files, a preapproval process that uses a soft pull eliminates the risk of dipping your toes in the water.
What Is a Hard Pull?
Understanding the Mechanics of a Hard Inquiry
What’s a hard pull? A hard pull, or a hard inquiry, happens when a lender requests your credit report for a specific application. Unlike a soft pull, you can see a hard pull on your report, and it does affect your credit score. Hard inquiries remain on your credit report for 24 months, according to the Fair Credit Reporting Act. You can expect a hard pull for credit when you:
- Apply for a credit card.
- Apply for a mortgage.
- Apply for an auto loan.
- Apply for a personal loan.
- Apply for a new line of credit.
Anytime you apply for credit, the credit report the creditor reviews will likely be a hard pull.
The Cost of a Hard Pull
So far, we’ve established that hard pulls aren’t necessarily a big deal, but how much do they actually hurt your score?
According to FICO, whose credit scoring model is used in about 90% of U.S. credit decisions, “a single inquiry may take less than 5 points off your score.” When former FICO public affairs manager Craig Watts was asked about the impact of inquiries on the FICO score, he replied, “It’s ironic that so much attention gets focused on credit inquiries because they are such a tiny part of the FICO score.”
New credit (where inquiries fall) accounts for just 10% of your FICO Score, but that 10% also includes other factors like new accounts. So the actual weight of inquiries is less than 10%.
According to FICO’s own website, 49% of consumers have no inquiries on their credit reports, and 57% receive maximum points for inquiries. The actual damage of a hard pull is less than 5 points. Here are some other negative marks and their average point deductions:
- 30-day late payment: 60 to 90 points.
- Collection account: 100 or more points.
- Bankruptcy: 130 to 240 points.
A hard pull barely moves the needle compared to those other deductions.
The Exception: Rate Shopping
Most consumers overlook one very important exception to the rules surrounding hard inquiries and rate shopping.
FICO’s Deduplication Window
What is the deduplication window? FICO recognizes that consumers shouldn’t be penalized for rate shopping, for instance, when they’re applying for a mortgage or auto loan. FICO’s newer models, FICO 8, 9, and 10, group all mortgage, auto, and student loan inquiries within a 45-day window and count them as one inquiry when calculating the score. Older models group inquiries within a 14-day window.
FICO also allows a 30-day grace period for consumers who are rate shopping. During this time, any mortgage, auto, or student loan inquiries are ignored. So if a consumer applies for five mortgages within a single week, the impact on the score will be the same as if they’d applied for just one.
VantageScore’s Consumer-Friendly Approach
VantageScore goes one step further. It allows a 14-day deduplication window for any type of inquiry, not just mortgages and autos. So if you apply for three credit cards within 14 days, VantageScore will count it as one inquiry. FICO does not offer this consideration for credit cards, which can be an important distinction for consumers who are applying for multiple cards as part of a credit rebuild.
According to a study by the National Bureau of Economic Research, the average consumer needs about three quotes to get close to the best possible interest rate. Consumers who are avoiding rate shopping in an effort to minimize the impact of inquiries are losing money. For instance, the difference a lower interest rate can make on a mortgage or auto loan can be in the thousands of dollars, far more than the temporary loss from three to five inquiries.
Dealership Shotgunning and Other Abuses
The most severe examples of unlawful hard inquiries are those that are never authorized by the consumer. Unlawful practices by auto dealerships are among the most frequent of the types of complaints described to the CFPB.
In some cases, for example, a dealer may submit a consumer’s credit application to multiple lenders at the same time, a practice sometimes referred to as “shotgunning.” This can result in a dozen or more hard inquiries on a single consumer from a single dealership visit to purchase a vehicle.
For example, in a case brought under the FCRA and a state law, a consumer claimed that 24 unlawful inquiries were made on her credit report over a two-month period (inquiries were spread across the three major credit bureaus). The consumer recovered a $60,000 settlement.
In another case, a couple claimed that a dealership representative told them that they needed to fill out a form required by the Patriot Act, when in fact the form was used to trick them into divulging their Social Security numbers so that the dealership could run unauthorized credit checks on them.
Not only are these practices frustrating to consumers, but each unlawful inquiry also shows up on the consumer’s credit report as a legitimate hard inquiry. Over time, multiple such inquiries could signal enough risk to other lenders that a consumer might be denied credit.
For example, one consumer reported to the CFPB that after negotiations with a dealer failed, the dealer ran a credit check through 10 different banks; the resulting inquiries remained on his credit report for more than a year.
Federal Enforcement Confirms the Scope of the Problem
Unlawful credit inquiries have been the subject of significant federal enforcement. The CFPB ordered specialty credit reporting company Clarity Services to pay an 8 million dollar penalty after finding it pulled over 190,000 consumer reports without permissible purpose to compile marketing presentations.
This is hardly an isolated incident, even among large financial institutions. The FTC’s 20 million dollar settlement with Vivint, its largest-ever FCRA settlement at the time, involved sales representatives using third parties’ credit histories to process financing applications.
U.S. Bank paid 37.5 million dollars after the CFPB found employees pulling credit reports on consumers who were not seeking credit. Wells Fargo’s scandal, which ultimately cost the bank 3.7 billion dollars in settlements, involved employees secretly opening over two million unauthorized accounts, many requiring credit pulls without consumer knowledge.
Your Rights Under Federal Law
The FCRA Limits the Purposes for Which Your Report May Be Pulled
The FCRA limits the circumstances under which any person may pull your consumer report to the following purposes: A creditor has a permissible purpose if a consumer applies for credit. A creditor also has a permissible purpose if it has an existing relationship with the consumer and wants to review her credit report as part of its account monitoring activities.
An insurer has a permissible purpose to pull a consumer report as part of the underwriting process. An employer may pull an applicant’s consumer report if the applicant has provided written authorization to do so. If a company accesses your consumer report without a permissible purpose, you have a number of legal options.
You may recover actual damages to compensate you for your injury; statutory damages between $100 and $1,000 for each violation; punitive damages intended to punish the perpetrator for its conduct; and any attorney’s fees you pay as a consequence of bringing the lawsuit.
In July 2022, the CFPB published an advisory opinion to clarify that permissible purposes are specific to each consumer and that, therefore, a disclaimer that a consumer’s credit report may not have been pulled for a permissible purpose will not cure an absence of permissible purpose.
Credit Reporting Complaints Are Overwhelming the System
Credit reporting complaints, many of them about hard inquiries or about pulling credit reports as a result of fraud, now represent about 79 percent of all complaints filed with the CFPB so far in 2023.
In response to such complaints, credit reporting bureaus often tell consumers only that an inquiry is a “factual record of an access to [a] file” that, even in the event of a dispute, would “remain on file for two years from the date of the inquiry,” according to the CFPB.
Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center, said, “Last year alone, consumers filed nearly five million complaints with the CFPB about credit reporting issues, the vast majority of them about Equifax, Experian and TransUnion.
And when credit bureaus approach every dispute as if the data is gospel, it prevents consumers who have legitimate issues from using the complaint process.”
Practical Tips for Avoiding Hard Pulls on Your Credit Report
How to Avoid Hard Pulls When You Apply for Credit
- Ask First: If you need a credit application, ask the lender whether they will soft pull your credit or hard pull. Many companies now offer a pre-approval soft pull before hard pulling for final approval. If they do, you can use the pre-approval to compare rates without racking up multiple credit report inquiries.
- Use the 14-Day Rule for Mortgages and Car Loans: If you are rate shopping for a car or mortgage, you can apply for multiple loans within a 14-day period and it will show up as a single inquiry on both your FICO and Vantage credit score. Under FICO’s newer models, you have up to 45 days for mortgage, auto, and student loan inquiries to count as one. There’s no benefit to dragging out your comparison shopping over several months if you can do it within a few weeks and have the same effect on your credit report.
How to Find and Remove Unauthorized Inquiries on Your Report
- Check Your Report Regularly: You can check your credit report as many times as you want, and it will never hurt your credit score. It’s always a soft pull. Since the three major credit bureaus all offer free weekly reports through AnnualCreditReport.com, there’s no cost to reviewing your credit report frequently.
- Check the Inquiries Section: When you pull your report, review the hard inquiries section closely. If you find inquiries from companies you don’t recognize or didn’t authorize, it could be a sign of identity theft or another type of unauthorized access. Make a list of any inquiries you don’t recognize, including the date and company name.
The Difference Between Soft and Hard Inquiries
Knowing the difference between a soft and hard pull can save you money and protect your credit score.
A soft pull will never show up on a potential lender’s report, and won’t affect your credit score.
A hard pull is visible to anyone you apply for credit with and can decrease your credit score (though the effect is usually less than five points).
The key is to avoid racking up hard inquiries you didn’t authorize but can’t get removed because the system assumes every inquiry on your credit report is legitimate. Hundreds of millions of dollars in federal penalties say otherwise.
Whether it’s dealership shotgunning or bank employees pulling credit reports to meet sales quotas, there are documented reasons to be concerned about the integrity of hard inquiries on your credit report.
What to Do About Inaccurate or Unauthorized Inquiries
If you have hard inquiries on your credit report that you didn’t authorize, or any other type of error or inaccuracy bringing down your score, you don’t have to live with it. Under the Fair Credit Reporting Act (FCRA), you have the right to dispute any information on your credit report that’s inaccurate, incomplete, or unverifiable.
At FightCollections.com, we specialize in disputing incorrect information on consumers’ credit reports, including hard inquiries and collection accounts. We know the dispute procedures for each credit bureau as well as the federal laws designed to protect your right to an accurate credit report.
Visit FightCollections.com to learn more about how we can help you take control of your credit report.
