What Is a Soft Credit Check?
A soft inquiry is an inquiry into an individual's credit report by a company or the individual. A soft inquiry can occur even if the person didn't apply for credit. A soft inquiry is merely a check or review of a person's credit report that's used to screen the individual for a pre-approval financing offer or background check. The good news is that a soft inquiry does not affect an individual's credit score. The credit score is a numerical representation of the creditworthiness of an individual to help creditors determine the likelihood of being paid back if credit is extended.
- A soft inquiry is an inquiry into an individual's credit report by a company or the individual.
- A soft inquiry can occur even if the person didn't apply for credit.
- A soft inquiry is merely a review of a person's credit report that's used to screen the person for a pre-approval offer or background check.
- The good news is that a soft inquiry does not affect an individual's credit score.
Credit Scores: Hard Vs Soft Inquiries
How a Soft Credit Check Works
Financial institutions and creditors may want to know whether an individual is managing their debt and credit history effectively. Some of the information creditors might want to know include the number of late payments or a person's credit usage, such as how much is borrowed on each loan or credit card. A soft inquiry–also called a soft pull–allows a creditor to review a person's credit report and credit score to get a sense of how well the person is managing their credit.
A soft inquiry can occur even when an individual checks their own credit report. Below are some of the most common examples of soft inquiries:
- An individual gives a potential employer permission to check their credit
- Financial institutions that you already do business with check your credit
- Credit card companies that want to send pre-approval offers
- You apply for a soft-inquiry pre-approval for a loan or mortgage
Although soft inquiries don't impact an individual's credit score, they are listed on your credit report.
Soft Inquiry vs. Hard Inquiry
There is another inquiry that can occur during a credit check that consumers should be aware of, and it's called a hard inquiry. Hard inquiries–also called hard pulls–occur when an individual applies for credit by filling out a credit card application. Hard inquiries also occur when applying for a mortgage, applying for an auto loan, or any number of other activities that result in a credit decision for the borrower.
Hard pulls can harm your credit score for a few months and may stay on your credit report for two years. Credit bureaus factor hard inquiries into your credit score because they assume that if you are applying for additional credit, you might be at greater risk of not paying back your existing debts. However, soft inquiries don't impact your credit score since credit bureaus don’t include soft pulls into their credit score calculations.
Soft inquiries are inquiries that you either didn’t request or are solely for informational purposes while hard inquiries are the result of the credit application process.
If you’re concerned about the impact of hard inquiries on your credit score, don’t apply for any loans or credit you don’t need. Also, if you want to open a new bank account or start a new cell phone contract, ask if it will result in a hard credit pull before you apply. Being cautious about the type of credit inquiry being executed will help to maintain better control over your credit score. If you ever see a hard pull on your credit report that you don’t recognize, contact the financial institution that initiated it because it could be a sign that someone else has fraudulently applied for credit using your name. It could also be a simple error that you may be able to clear up with the credit reporting bureau.
Benefits of a Soft Credit Check
Consumers can use soft inquiries to better understand how their credit score is reported with the various credit agencies. One of the best ways to do this is by taking advantage of free credit scores offered through your credit card company. Nearly every credit card company offers cardholders a free credit score assessment, and each assessment will differ by the reporting agency used. These inquiries are considered soft pulls and can provide you with information on your credit score and credit profile each month.
The Fair Credit Reporting Act (FCRA) regulates how credit bureaus or agencies collect and share an individual's financial information. By law, consumers have the right to obtain a free copy of their credit report every 12 months from the credit bureaus. Individuals can also get a copy of their report from the government-authorized website called AnnualCreditReport.com.
Since soft inquiries are listed on a credit report, they can provide useful information as to what companies are considering extending credit. These inquiries will be found under a subheading such as "inquiries or inquiries that do not affect your credit rating.” This portion of your credit report will show the details of all soft inquiries, including information such as the requester’s name and the inquiry date.