If you’re looking to borrow money, either in the form of a credit card or a loan, then you need to familiarize yourself with the concept of credit score, credit reports and credit pulls. When applying to borrow money banks will check your credit report – too many black marks and they may see you as a risk and choose not to lend to you.
What is a Soft Pull?
Soft credit pulls are when a company is simply checking up on your credit history – a kind of gentle ‘touching base’ rather than a solid investigation. These normally happen when you check your own credit score, have a background check done (e.g. by an employer) or accept a preapproved credit card. Soft inquiries can happen at any time (even without your permission) but they won’t be counted against your credit score.
What is a Hard Pull?
Hard credit inquiries happen when a company needs to check you’re able to manage repayments on a financial product. In most cases you need to give permission for a hard inquiry against your credit report, but not all. These leave a mark on your report that can drop your credit score by anywhere from one or two points up to 20 in some cases. For most people a single inquiry will drop your score by around five points, and they remain on your record for two years.
Be Weary of a Hard Credit Pull
Sometimes you will have a hard pull on your credit record even when not applying for a loan. Other less thought of situations include applying for a rental property, getting a phone contract, or renting a car. Multiple hard pulls on your credit score will have a negative impact.
If you are shopping around for the best loan, make sure to keep all your applications within a few days of each other. This way it will be interpreted as loan shopping, rather than being seen at taking up multiple lines of credit. If you have spread them around, no need to fret; after 45 days all those hard credit pulls will be classified a one inquiry, rather than multiple.
Keep an eye on your credit score and remember any hard inquiries will stay with you for the next two years. A higher score can lead to a bank offering you a larger mortgage or a lower interest rate, which could be all the difference in securing your dream home, or next big investment.