Hard vs soft credit pulls: What’s the difference?

Hard vs soft credit pulls: What’s the difference?

You probably know that inquiries into your credit report, known as “credit pulls” in the industry, can negatively affect your credit score.

What you may not know is that there’s more than one type of inquiry—and each impacts your credit differently.

Here’s what you need to know about “hard” and “soft” credit pulls, who uses them and when, and how they’re treated by the credit reporting agencies.

What is a soft credit pull?

Ever wonder how credit card companies can send you pre-approved offers when you’ve never even filled out an application?

The company did a soft credit pull to prequalify you for a card—which they can do without your permission.

Soft pulls have no effect on your credit score, and in most cases, they aren’t even recorded by the credit reporting agency. They’re not connected to any particular application for credit, so they don’t count against you. It’s the key feature of a soft pull.

When you request a copy of your own credit report, it’s considered a soft pull. Ditto when an employer or other agency requests one as part of a background check.

And when you check your rates with Hearth, it’s a soft pull, because it’s used as a screening tool by our lending partners, not as a deciding factor in offering you a specific loan.

What is a hard credit pull?

Your lender makes a hard pull once you’ve completed an application for a particular loan—mortgage, auto, personal home improvement, or even a credit card. If you apply to rent an apartment, and they check your credit as part of the approval process, it’s a hard pull. You have to authorize hard credit pulls, and they become part of your credit report.

Unlike soft pulls, hard pulls can have a negative effect on your credit score. A single hard pull here or there probably won’t hurt you, but too many hard pulls are a red flag for lenders.

That said, most credit reporting agencies recognize that consumers today often comparison shop for lenders to be sure they’re getting the best rates. They lump all hard pulls during a certain time frame, usually 45 days, into one inquiry, to minimize the impact on your credit score.

Although hard credit pulls stay on your credit report for two years, the credit reporting agencies only consider hard pulls in the past 12 months when calculating your credit score.

When you work with Hearth to find a home improvement loan, you’ll only have a hard credit pull after you’ve reviewed your rates and completed the application process with your lender of choice.

How do hard and soft credit pulls affect your credit score?

If you’re wondering why credit pulls affect your credit score at all, here’s an interesting statistic from the Fair Isaac Corporation (better known as FICO), the granddaddy of credit reporting agencies: People with five or more inquiries over the course of a year are 600% more likely to be 90 days past due on a debt compared to people who had none.

Applying for multiple types of credit lines in a short period of time, as compared to rate-shopping a particular type of loan, lowers your score because it suggests to lenders you may be a higher risk for default.

But to keep things in perspective, inquiries make up a very small part of your overall credit score—just 10% to be exact. For most people, a single hard pull will only take about 5 points off their credit score. Given that credit scores range from 300 to 850, you can see how minor a 5-point drop really is.

If you have a very short credit history, or you’ve got just a couple of credit accounts, hard pulls can have a bigger impact—and that’s especially true if your credit score is on the lower end of the spectrum. If that sounds like you, use caution when applying for loans until your credit history is stronger.

What to expect from Hearth

To sum up, there’s no effect on your credit when you complete an online application with Hearth to prequalify for a loan. Our partners use a soft credit pull to screen you for their loan programs.

Once you select a loan provider to work with on your home improvement financing, you’ll complete the application process with that provider. Only then does a hard credit pull come into play.

You’ve got nothing to lose credit-wise by applying with Hearth, and you’ll gain access to a wide range of lending partners ready to show you their best rates for a loan.

Click here to request financing from Hearth.