Credit pulls are more formally known as credit inquiries or credit report checks. ‘Hard’ and ’soft’ are terms used to describe how a credit report is checked and for what reason. Hard and soft pulls aren’t necessarily formal terms used by financial institutions but rather a type of financial slang. The meaning of these terms is understood by most who are knowledgeable about the workings of credit reports and ratings. There are several distinct differences between hard and soft credit pulls and their affect on credit reports.
Understanding Pulls
Hard credit pulls should only be done after an individual gives authorization for one. Once a hard pull is done on a credit report it is visible to any others who check the report. Applying for a new credit card, insurance policy or a loan will usually will result in the lender asking the borrower to authorize a review of their credit. This formal authorized review by a third party is considered a hard pull.
Soft pulls are simple credit checks. These pulls are only visible to the owner of the report. Applying for a savings account through your bank, or filling out an application for an apartment may be subject to soft credit pulls. Checking your own credit report or having your identity checked by your new bank is in the category of the soft credit pull. Soft pulls are non-intrusive, fairly routine credit checks.
How Important is a Credit Score
A FICO Score is an acronym for (Fair Isaac and Credit Organization). According to their website, FICO is a well known developer of data management systems that provide tools that assist businesses to make sound financial decisions. A FICO score is an individual credit score determined by the tools designed by FICO. These tools attach a credit number to people based on their financial history. This number is used by lenders to determine person’s creditworthiness.
Most American credit scores are calculated by the FICO tools. Credit scores often determine if a person will be granted a loan. Scores are based on a number of criteria used to gage if a person will be likely to pay back a loan or if they are a risk. In terms of credit, high scores are considered good or low risk and low scores are considered bad or high risk. Most people fall somewhere in the middle of the good and the bad spectrum.
What Hard and Soft Means to My Credit Rating
Each time a hard pull of a report is done for the purposes of borrowing money it affects the overall credit score. Hard pulls may be the equivalent of negatives or blemishes on a credit report. These negative notches on the credit report are signs to future lenders that the borrower has tried to borrow in the past. Too many of these hard pull marks on the same report may be considered warning signs to the lender that the potential borrower tries to borrow often. Those with more debt may have more difficulty paying back money that they owe. Hard pull inquiries typically remain on a person’s credit report for an average of two years and can drag down credit ratings.
Soft pulls typically have no negative impact on your credit rating. Soft pulls are just routine credit checks that are invisible to anyone other than the owner of the credit report. It is good practice to be in the habit to routinely check your credit report. This can make you aware of any hard pulls on your report and keep you aware of issues, errors or problems with your credit standing.
Be Informed
Your credit rating number can help or hurt you. The credit score rating is an important number that is used to decide if and how much you can borrow and how much it will cost you to borrow. Ignoring your credit report can’t help you but probably can hurt you in the long run. When asked to authorize a credit report check always know to ask if it will be a soft or hard pull to your report and then decide if it’s worth it.
Credit report ratings are not all about how much you borrow and how well you pay it back but also how often your report is checked. High frequency checks may be a warning sign to lenders. As a consumer you should be aware of the pulls both hard and soft on your report. Be aware of credit checks that can help you and keep you informed and be leery of those that can blemish your credit report.
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