If you’ve applied for credit before, you might be familiar with hard and soft pulls (also known as hard and soft inquiries). Performing these pulls is like running a background check on someone before giving them a job offer. You wouldn’t want to hire someone with a long criminal history. The same mindset applies to lenders. Financial institutions don’t want to lend money to individuals with a track record of late payments, collections, and bankruptcies. And if lenders give loans to consumers with marks on their credit report, they’ll charge higher interest rates and offer less favorable terms.
Hard and soft pulls share a few things in common, but both impact your credit score differently. Too many hard pulls can put a dent in your credit score. If you see a decline in your score due to hard inquiries, be sure to use our income-based repayment calculator to learn how to get out of debt fast.
Are hard and soft pulls as scary as they seem? Let’s take a closer look at the two and explore how they can impact your credit score.
Understanding Hard Pulls
When applying for a loan or credit card, the lender performs a hard pull. This hard pull gives the lender a deep look into your creditworthiness, including the amount of credit you have used and the timeliness of your payments. Many financial institutions use artificial intelligence to underwrite new lines of credit. On the other hand, smaller organizations may look at your credit report manually. Before applying for credit or loans, you must give the lender permission to make the hard inquiry against your credit report. Not only that, but the lender must have a “permissible purpose” – a valid reason listed by the Fair Credit Reporting Act (FCRA).
Permissible purposes include:
- Insurance underwriting
- Credit applications
- Tenant screening
- Court orders
Hard Pulls and Your Credit Score
A hard pull typically causes your credit score to drop between five to ten points. Individuals with high credit scores may see no impact on their scores. Nevertheless, consistently applying for new lines of credit could do more damage to your score. Now, you might be wondering, “how many hard pulls are too many?” The general rule of thumb is to have no more than six hard pulls on your credit report. Once you accumulate more than six hard pulls, lenders may deny your application.
Thus, it’s essential to check your credit report at least once per year with all three major credit reporting agencies (Equifax, Experian, and TransUnion). Pay close attention to the number of inquiries on your credit report. Depending on how many inquiries you have, you may want to wait before applying for new lines of credit.
Can You Remove a Hard Pull from Your Credit Report?
You cannot remove valid hard pulls from your credit report that you authorized. However, you can dispute hard pulls if you were the victim of identity theft. Fortunately, hard pulls only stay on your credit report for two years. Still, a significant number of hard inquiries can impact your ability to get loans or force you to pay higher interest rates. If you see illegitimate hard pulls on your credit report, you should report them to the credit reporting agencies. The agencies must respond to your dispute within 30 days (although most provide a quicker response). You can file a dispute with the credit reporting agencies by visiting the below links:
Can You Get a Loan Without a Hard Pull?
Most lenders perform a hard pull as part of their standard underwriting process. The inquiry enables them to look deep into your financial history and determine your creditworthiness. Payday lenders and a handful of online lenders will loan you money without a credit check. You should use caution with these companies, as they often charge high-interest rates to hedge the risk of lending cash to unvetted borrowers.
Understanding Soft Pulls
Soft pulls are similar to hard pulls in that organizations use them to gain more insight into your background. The main difference is that soft pulls don’t impact your credit score. For example, a fin-tech application might perform a soft pull to give you information about your credit score. However, since you’re not applying for a new line of credit, the soft pull won’t lower your score like a hard pull. There’s a possibility that soft pulls might show up on your credit report, but FICO and TransUnion don’t display them.
Can Lenders See Soft Pulls?
Lenders cannot see soft pulls and don’t consider them during the underwriting process. Only you can see soft pulls when you request a copy of your credit report. And although soft pulls don’t impact your credit score, they can stay on your credit report for up to two years.
How Many Soft Pulls Is Too Many?
There’s no “magic number” of soft pulls that is too many. Since soft pulls don’t impact your credit report, you shouldn’t worry about them. However, it’s essential to know when an organization will perform a soft pull vs. a hard pull so you mitigate the potential impact on your credit score.
Hard Pulls vs. Soft Pulls: A Final Glance
Hard pulls and soft pulls give third parties insight into your credit history. The critical difference between the two is that a soft pull does not impact your credit score. Hard pulls, on the other hand, can decrease your credit score by five to ten points. A hard pull on your credit report indicates that you’ve applied for a line of credit, a soft pull does not.
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