The much-disputed credit check is a must when applying for credit in today’s financial atmosphere. When applying for any type of loan, or even some types of new accounts, an institution will likely run your credit to determine if you meet their specific criteria for approval. And what if you just want to check your own credit to see where you rate and check for any fraud? Many people are afraid to have their credit run in any scenario because they are not aware of the difference between a soft and hard credit inquiry. If you have heard that checking your credit can negatively affect your credit, you are probably wondering if there is truth to this. Well, the answer is yes and no. The explanation comes down to the type of credit check and the number of inquiries. Not all credit checks will appear in the same way or will have the same effect on your credit score. A credit check can be categorized as either a “hard” inquiry or a “soft” inquiry. The difference between the two will be in how it is reflected on your credit report (or not.)

Hard Credit Inquiry

When you apply for a loan (like a mortgage) or a credit card, it is likely that a credit issuer will be running a “hard” credit check on your credit. When running a hard inquiry, this is the type of check that will show up on your credit and potentially lower your score if there is too much activity. The effect that a hard inquiry will have is typically negligible when it comes to your actual score, as it has a low impact on your overall rating. Hard checks become a problem when there are too many inquiries in a short amount of time. This may signal to a creditor that you are using or applying for more credit as a result of being deficient on funds or irresponsible with your credit. This could trigger a denial from an issuer based on the amount of credit requested. It could also trigger a higher rate based on your credit risk. A hard inquiry will also need to be authorized, so if you see a credit inquiry on your credit report that you did not authorize, this could be an indication of fraud or an unauthorized check. In this case, you would be able to research and dispute the check.

Soft Credit Inquiry

Soft credit inquiries are much like they sound. They do not make an impact on your credit and are used more freely when making credit decisions. When you use a service to check your own credit, it will typically result as a soft inquiry, therefore it will not negatively affect your credit. Soft inquiries don’t always need your express permission either. A credit issuer you already have may “prequalify” you for a loan by running a soft inquiry first. You may also be subject to a credit inquiry before a utility company approves your account to check if a deposit will be required. Most times, these inquiries show up as “soft”, but double check that this will be the case if you are going to be applying for credit in the near future.

If you are going to be applying for a loan such as a mortgage, where your credit score will impact your rate or approval status, try to minimize any hard inquiries that are not totally necessary. Before you let a lender run a hard inquiry on your credit, be sure that you will be using that lender or you have the room on your credit score to have another inquiry without suffering the impact. Do not apply for more loans or credit cards around the time of an important application decision in order to manage the effect of credit inquiries on your credit.