What is a Hard Inquiry?
A hard inquiry is a type of credit information request that includes a borrower’s full credit report and deducts points from a borrower’s credit score. These types of inquiries are used in credit approvals and background checks.
Understanding Hard Inquiry
A hard pull is another name for a hard inquiry. A hard pull is required for a credit decision, and it may also be used in other types of background checks such as for employment or rental leases.
Generally, there are two types of credit inquiries that an entity can request: a hard inquiry and a soft inquiry. Soft inquiries follow slightly different procedures and include less information than a hard inquiry. Soft inquiries are also not reported on a borrower’s credit report and have no effect on their credit score. Examples of soft inquiries may include free credit score reports, prequalification approvals from lenders and loan information requests from credit marketing services.
Hard Inquiry Process
A hard inquiry requests a borrower’s full credit history and credit score from a credit-reporting agency. Entities have the option to choose the credit reporting agency and credit report style that best fits their needs. Most entities will rely on standard credit bureaus such as Experian, Transunion, and Equifax. Other entities may use alternative bureaus which can provide deeper analysis or credit scoring based on alternative methodologies.
Any type of hard credit inquiry will be reported on a borrower’s credit report causing a small credit score deduction. Hard inquiries remain on a borrower’s credit score for two years. Borrowers who have many hard inquiries in a short time period will see a more dramatic deduction to their credit score and will also be considered a higher risk to lenders.
A hard inquiry provides a creditor with a full credit report and credit score. Some entities place greater emphasis on a borrower’s credit score than others with qualifying ratios also serving as a component in credit underwriting.
Generally, a borrower’s credit report is only half of the information needed for an underwriting approval. Creditors will also analyze a borrower’s debt-to-income which is the primary qualifying ratio for most loans.
Creditors have customized technology and underwriting processes that generate loan approvals based on both credit reports and qualifying ratios. Creditors will generally require a credit score minimum. In standard loans, a creditor will also usually require a debt-to-income ratio of at least 36% or less. In a mortgage loan, creditors will also analyze a borrower’s housing expense ratio which must typically be approximately 28% or less for mortgage loan approval.