A credit inquiry is a check on your credit history prior to issuing a loan or credit card. Credit inquiries are also known as a credit check. There’s two different types of credit inquiries: soft and hard. One is risk-free and one should be used modestly.
What the Types of Credit Checks?
Soft Credit Check
A soft check is a quick way to see if you qualify for the loan. There’s no risk as it does not affect your credit score. The soft check reveals limited information to the lender regarding your ability to pay off debt. Certain times where a soft check can be done include a pre-approval, when you check your credit score, and background checks with employers.
You can easily do a soft check with your free credit score check functionality within your bank app. This is a great way to monitor your credit score and keep track of how you’re doing. If you are looking to improve your credit score, check out our popular blog post here.
Hard Credit Check
A hard credit check is a full review of your credit history to produce a credit report. The credit report allows lenders to assess your reliability and responsibility with money. With the credit report, lenders can see what credit accounts you have open and / or closed with your payment history. This detailed look into your credit history allows lenders an in-depth analysis to determine your creditworthiness.
A hard credit check is conducted when you apply for a mortgage, credit card, line of credit, auto loans, and some employers hard check their employees. It is important to understand what type of check is happening during your engagement.
Due to the level of detail, a hard check usually does affect your credit score and can negatively affect it if it happens too often. The question that often arises is why is this person trying to access so much credit with hard credit inquiries.
Use the credit inquiry to your advantage to unlock access to money at a low-rate. If you are looking for more information, check out our Personal Finance Guides that includes understanding credit and debt.
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