Hard Inquiry vs Soft Inquiry: Difference and Impact on CIBIL Score

Every loan or credit application you make leaves a trace and a digital footprint. This can be classified into hard inquiry vs soft inquiry depending on purpose. This is accessible to lenders and creditors to make the final decision whether you are eligible to borrow money or not.

Aggressive and impulsive applications can be viewed as desperation for borrowing by bureaus and lenders. Although these credit score drops are only temporary, it stays within your credit profile for 24 months, and the drop is not worth it.

Hard inquiry vs soft inquiry are very distinct terms, even though the contextual meaning is the same. Regular soft checks are very important to monitor credit health. Hard inquiries are credit checks pulled by lenders when you apply for a loan. Both have very different consequences in terms of credit health.

Let's learn more about the differences between hard inquiry vs soft inquiry. Compare the triggers that cause hard inquiry vs soft inquiry.

What Is A Hard Inquiry?

A hard inquiry is a check of your creditworthiness when you apply for a loan. Lenders make a lending decision based on this report. This creates a temporary score drop, which can be avoided if you limit applications to less than two. It stays in your report for up to two years, but its impact only lasts the first year.

It can be called a hard pull or hard credit check. This can be conducted on a single bureau or on all three of the CICs: CIBIL, Experian and Equifax. Multiple hard inquiries can be viewed as a desperate need for borrowed money. The defined timeframe is 45 days of previous hard pulls.

An understanding of hard inquiry vs soft inquiry can help you protect your credit. It is important to know what kind of actions trigger a hard pull: 

1. Credit Card Applications
2. Mortgage and Auto Loans
3. Student Loans
4. Personal Loans
5. Rental Agreement
6. Request for credit limit increase

What is a Soft Inquiry?

A soft inquiry is a regular credit check that you do yourself from the credit bureaus like Experian or CIBIL. Financial or lending institutions and companies can also pull a soft check on your credit report. Unlike hard pulls, they do not affect your credit score at all. So, you can check your credit score and report as many times as you want. Most of the time, soft checks do not require your permission, and you might not even know about the soft pulls.

1. Self-checking of credit report
2. Pre-qualification for a loan
3. Employer background checks
4. Rental agreement
5. Registration of a service at a new address
6. Servicing of existing users of credit cards and credit monitoring
7. Checking whether you are eligible for offers and credit limit increase 

What Can Be Done To Prevent Hard Checks?

As out of control as it might sound, hard pulls can be managed systematically. This requires an understanding of hard inquiry vs soft inquiry. Hard inquiries cannot be conducted without your permission. You don't have to avoid loan or credit applications entirely. Some methods can be used to avoid harm to your credit score.

1. Rate Shopping Timeframe: Limit and bundle your applications within a period of 15 to 30 days. Bureaus will recognise this process and bundle all the applications into one single hard inquiry. Remember that this only applies to mortgage, car and student loans. This window is 45 days in FICO models but 14 days in old FICO models.
2. Pre-Qualification: Many banks and credit card companies offer pre-qualified offers of loans or credit cards. Make sure to avail these offers made to you based on soft checks instead of hard pulls.
3. Fewer applications for credit cards: Credit cards can not be counted IN the rate shopping method. Therefore, maintain a six-month gap for new credit card applications.

Apart from limiting credit applications, monitor and check your credit report for any suspicious or unauthorised hard inquiries. File a dispute for such actions on your credit report immediately, as it can be a sign of fraud and identity theft.

Hard Inquiry vs. Soft Inquiry: What’s the difference

There are major differences between hard inquiry vs soft inquiry. Understanding these differences is a key part of credit management. For example, a soft pull will never impact your credit score directly. Whereas you should avoid a hard check to maintain your credit score.

How many hard inquiries are counted as bad?

The effect is actually temporary and only shows on the bureau report which the lender has requested. If a lender only checks the Equifax and Experian credit report, the hard inquiry won’t affect your CIBIL credit report.

If you make several applications for a home loan in 7 months, it will be counted as a separate hard inquiry. However, if you conduct this research within  14 to 45 days (subject to the scoring model), it will all be bundled in one hard inquiry.

This is possible based on a few conditions– all the loan types are the same and are eligible for credit bundling. It has to be a large instalment loan and definitely not credit card applications. If you are looking to use multiple credit cards, make sure to maintain a gap of six months between each new credit card application.

There are no explicit rules that mark the number of hard pulls as bad. However, the number can leave a non-linear impact that may drop your credit score. For example, 6+ hard inquiries can drop 40+ credit score points.

How to find out who has checked your credit report?

The first step is to check your credit reports from every credit bureau like Equifax and CIBIL. Each credit report is different, and hard inquiries will only show up on those bureau reports where the creditor has requested one. If he requested one in only two bureaus and not in Experian, the Experian credit report will have no record of a hard inquiry.

Such information can be listed under sections called “Enquiry Information”, “Credit Inquiry”, “request viewed by others”, or “Account review”. Such section names are different for hard inquiry vs soft inquiry.

Each Inquiry is listed alongside the company. Here, you have to look and check for unauthorised hard inquiries. The company name, date of inquiry, and contact details should be identical to the one where you submitted an application for credit or loan. If it's some entity that you don't recognise, immediately file a dispute at your bureau for verification and removal.

Conclusion

Key differences between Hard Inquiry vs soft inquiry are that the former can hurt your credit score, while soft pulls are harmless. A hard inquiry requires your permission, and a soft pull can be conducted without your knowledge.

Hard inquiries are not always harmful; they can be systematically managed. One should limit credit applications and track the renewal timeframe, like 30 or 45 days, when you can apply for new credit. You can also use the bundling method depending on your loan type and scoring model. Stay proactive, conduct independent soft checks and use the pre-qualified loan or credit card offers to avoid unnecessary hard pulls. However, for multiple credit card applications, maintain a gap of six months between each subsequent application.

Many uninformed people fall prey to myths like “soft pulls drop credit scores”. It is our responsibility to educate ourselves about the difference between hard inquiry vs soft inquiry.

FAQs

1. Can I remove hard inquiries?

Legitimate hard inquiries can not be disputed or removed before the 2-year window expires. Until then, your report continues to display those hard inquiries. In case of unauthorised hard checks, you can file a dispute with your credit bureau.

 2. What’s the difference between hard inquiry vs soft inquiry?

1. Only lenders can pull hard checks of your credit report to make a final lending decision.

2. A soft check can be done independently by the individual. A hard pull can cost you 5 to 10 credit score points, while a soft check is harmless no matter the number.

3. Unauthorised hard pulls should be disputed because no one can legally pull a hard check without your permission. Soft checks can be done by anyone without you even knowing.

3. What are the circumstances which trigger hard pulls?

The following actions trigger a hard pull:

●     Credit Card Applications

●     Mortgage and Auto Loans

●     Student Loans

●     Personal Loans

●     Rental Agreement

●     Request for review of credit limit

4. Which loans are eligible for the rate shopping method?

Limit and group your applications within a period of 15 to 30 days. Bureaus will recognise this process and bundle all the applications into one single hard inquiry. Remember that this only applies to mortgage, car and student loans.

5. Can I use the rate-shopping method on credit card applications?

No. Credit card applications need approval, so it can not be counted within the rate shopping method. Bundling inquiries is only applicable for large instalment loans. Since each account of a credit card falls in separate revolving lines of credit, it can not be bundled into one single search.

6. How many credit points suffer because of hard inquiries?

A single hard inquiry can take 5 to 10 credit points. This number is less than 5 for FICO models. Multiple applications can cost 20 to 30 of your credit score points. This is because lenders view this as financial overdependence and credit aggression.

The impact continues to show for the first year, and hard inquiries remain in your credit report for two years. This effect is most noticeable within the first quarter.