Sometimes the pressure that comes with running a business may push you into rushing for new loans and seeking new credit cards pointlessly without realizing its effect on your credit score.
Lenders may fail to approve you if you have made several credit inquiries depending on the loan you wish to apply for.
Achieving good credit and clearing your debts calls for a proper understanding of hard pull vs. soft pull inquiries. It is important to realize that some credit or loan inquiries can negatively affect your score for a very long period, even up to two years.
What’s a Credit Inquiry?
Anytime you give out your financial data for a loan or new mortgage, the lending institution may pull your credit report. Through Credit inquiries, financial institutions can analyze your credit score and records to check if you’re creditworthy. There are two types of inquiries that can impact your report in different ways: hard pulls and soft pulls.
Hard Pull
A hard pull occurs when you start applying for a credit card, home loan or car loan. The lender will look into your credit report to see if you are creditworthy. Hard pulls have the greatest effect on your credit and could make your score drop significantly.
But how long do hard inquiries stay on your credit? Well it may go up to two years. That’s why you need to space out and limit the number of loans you seek within in a short span.
However, hard inquiries should only be conducted with your permission. You can view names of lenders who pull your credit on the “credit inquiries” segment of your report. Examples of hard pulls include; applying for a car loan or business funding, applying for a new credit card, getting approval for a mortgage, requesting a loan or credit increase etc.
Soft Pull
Unlike hard pulls, soft credit pulls don’t appear or reflect negatively on your credit report or score. Soft credit inquiries take place when a financing company conducts a background analysis without your consent or pre-approves you for a loan or credit card.
Soft pulls can be conducted without your say-so, no wonder you receive pre-approval offers now and again.
Soft credit pulls also occur when you try to review your own report. Your credit company pulls your data to allow you check the details. But soft pulls are nothing to worry about as they don’t impact on your credit. Examples include; personal check of your credit report, background reviews, credit card or loan pre-approvals, identity verification.
The bottom line
Before seeking new credit always be sure to thoroughly check your credit report, more so the inquiry section. To ensure a high FICO score, you must keep low the amount of hard pulls on your credit.