There is a common misconception that every time a lender reviews your credit report, your credit history will suffer. Fortunately, this is not the case. Here it is useful to understand the difference between hard and soft credit requests.
While a hard loan request (when you apply for a new loan product) does affect your credit score, a soft request (when a lender or other third party reviews your credit score for a purpose other than applying for a loan) will not. your credit rating. general credit score.
Let’s dive into how hard and soft requests work and how they can affect your credit score.
What is a complex query?
A hard request (also called a hard credit check or a hard draw) occurs when you apply for a new loan product, such as a credit card or loan. When you apply for a loan, lenders will review your credit report to determine the risk of lending money to you. Rent and utility requests can also lead to serious inquiries.
When a lender reviews your credit as part of your application, it’s considered a tough pull. You will face difficult credit requests when applying for credit cards, auto loans, mortgages, and other types of loan products. A thorough inquiry will lower your credit score, usually by a few points.
What is a soft request?
There are two different types of soft requests: requests from yourself or from an outside party.
A soft request (also known as a soft credit check or soft get) occurs in several different scenarios.
Basically when you review your own credit report. You are entitled to order one free copy of your credit report from each of the three major national credit bureaus (Experian, Equifax and TransUnion) once a year at AnnualCreditReport.com.
Even if you want to review your credit report more than once a year, it won’t hurt your credit score. Reviewing your credit report regularly is a good habit, as you can keep an eye out for any mistakes you need to correct or signs of identity theft.
A soft credit request can also arise when you apply for pre-approval with a lender, receive an offer from an insurance company, or when an employer reviews your credit as part of the job application process.
It’s a bit of a hit or miss if an employer checks your creditworthiness when considering hiring you. This is more common in positions that require strong cash management skills (such as an accountant or financial director). If an employer wants to renegotiate your credit, they must first inform you and obtain your consent.
There will be times when you may not know that a soft loan request is going on. For example, when you receive unsolicited credit card offers in the mail, that credit card issuer has likely completed a soft loan request to see if you qualify for the credit card they want you to formally apply for.
Examples of hard and soft loan requests
To better understand when you might be facing a hard or soft loan request, check out a few examples of when you might be subject to a hard or soft loan request.
Common Complex Queries
- Loan applications (credit card, personal loan, car loan, mortgage loan, etc.)
- Rental Applications
- Some utility applications
- Applications for increasing the credit limit
General soft requests
- Proposals for pre-approval of a loan application
- insurance quotes
- Credit monitoring services
- Checking the creditworthiness of a potential employer
How hard and soft requests affect your credit score
Unfortunately, tough requests do hurt your credit score because credit bureaus interpret new loan applications as a sign that you’re about to go into debt. On the flip side, the hit to your credit score won’t be huge—loan inquiries only account for 10 percent of your overall FICO credit score.
As a rule, the credit score drops by 5-10 points after one thorough inquiry. Your credit score may recover fairly quickly from this drop, but the request will remain on your report for two years.
Remember that a soft request will not affect your credit score in any way.
How to Minimize the Impact of Tough Credit Requests
We can’t always avoid serious requests, but we can minimize their impact on our credit history. When you apply for a new credit card, each application will result in a hard request. That’s why it’s a good idea to know what kind of card you want and how likely you are to be approved before you apply, as well as postponing card applications for at least six months. Here’s what happens when you need to apply to multiple lenders:
Several hard pulls in a short amount of time
When you’re buying a loan product like an auto loan or a mortgage loan, chances are you’ll want to approach multiple lenders to see who will provide you with the best possible interest rates, fees, loan amounts and terms.
When multiple lenders manage your credit to determine if you qualify for a loan and for how much, this is indeed considered a hard pull. But here you have some protection – several hard requests for the same type of loan within a short period of time will be considered as one hard request.
Let’s say you’re buying a mortgage and going to multiple lenders to make sure you get the lowest interest rate. The first request for a mortgage, car or student loan is completely ignored by the credit rating formulas for 30 days after the loan is received. However, when any other lender withdraws your loan for mortgage, car, or student loan approval within the next 45 days, those requests will only count as one request.
Credit reference agencies know that applying to several different lenders is a smart financial move and won’t penalize you for it. When you apply for the same type of loan product from multiple lenders within a short period of time, they assume that you are looking for the best deal and don’t want to accumulate debt through multiple different loans.
How to dispute tough loan requests
When you review your credit report, which is considered a soft request, it is important to check it for errors. If you find a complex request on the list that you think is incorrect, you can take steps to challenge it and remove it from your credit report.
1. Collect supporting documents
You need to collect any information that can serve as evidence that the hard request in your report is incorrect. If the confusion is due to a typo, wrong date of birth, or wrong address, you can also provide proof and correct the mistake. While credit report errors can be a sign of fraud, sometimes they are due to simple typos.
2. Write a Dispute Letter
You will then need to write a letter challenging a complex investigation that you believe is a mistake. This sample letter from the Federal Trade Commission is a great place to start, but you can modify it to suit your needs. Your letter must explain why you are disputing a hard request and ask that it be removed or amended. You must attach any supporting documentation, such as an ID card, to your letter.
3. Keep a paper trail while you wait for a response.
Through the Fair Credit Reporting Act, credit bureaus are required by law to investigate any claims of error in credit reports. It is still important that you keep an organized paper trail of your messages and respond to them in a timely manner. If you eventually need to take the dispute to court, you will need clear documentation of your correspondence with any credit bureau.
If the credit bureau you are opposing finds that a thorough investigation was a mistake, they must correct it and send you a new copy of the corrected report free of charge. You can also request that the credit bureau send a correction notice to any company that has received your credit report in the past six months.
bottom line
Hard requests can temporarily hurt your credit score, but don’t be afraid of soft requests because they won’t affect your credit score at all.
There will be times when you won’t be able to avoid a tough investigation – and that’s okay. They will eventually leave your report, and while you wait, you can practice other good credit habits (like making payments on time) to keep your credit score as healthy as possible.
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