Credit inquiries are requests by companies such as lenders to check your credit. Soft and hard credit inquiries are two types of information found on your credit report.
Soft Credit Inquiries
A soft credit inquiry is when creditors pull your credit report without you initiating an application or request for credit.
With existing credit relationships, creditors can periodically pull your credit report to see how you are doing with other lenders. This calculates potential risk of default. Soft inquiries do not impact your credit score so there’s no cause for alarm.
Other types of soft inquiries are from credit monitoring services and for marketing purposes such as prescreened credit offers.
Hard Credit Inquiries
A hard credit inquiry happens when you’ve applied for any type of credit such as mortgages, credit cards, and loans. Applying for utilities, cell phone service, and some bank accounts may result in a hard credit inquiry as well.
Hard credit inquiries stay on your credit report for up to 2 years. The impact of the hard credit inquiry lessen after 12 months but is still visible to lenders for an additional 12 months. These inquiries impact your credit score negatively. Applying for credit is necessary but excessive credit applications may signal a future debt problem.
Applying for credit is necessary but excessive credit applications may signal a future debt problem. To lenders, it’s a red flag signifying a higher risk. Too many credit applications all at once can lower your credit score. In effect, it could take your from excellent credit to good credit.