Of course you monitor your credit score. Of course you would rather keep it in the “good standing” range and therefore keep yourself credit-worthy. However, you also need to apply for credit cards, apply for a job, and possibly apply for a mortgage loan. All of these sound beneficial, right? But not until you hear what they can actually do to your credit score. Ever heard about a “soft credit pull”? Have you ever wondered what is a hard credit pull? Both of these can be related to your credit card, job and mortgage loan applications.
A “soft credit pull” is a type of credit check that is general, routine, and will not have an impact on your credit score. A “hard credit pull,” on the other hand, is a comprehensive, detailed look into your credit activities. It will take around 5 to 6 points off of your credit score. This deduction from your credit score will only be recovered 6 months after the “hard credit pull.” Between hard vs soft credit pull, you should avoid making too many hard credit pulls within a short time span. This is why, when you are applying for credit cards, it’s not a good idea to apply for too many accounts at once. Neither should you apply for a card then apply for a major loan like a home or auto loan. If possible, whenever in the market for consumer credit, be strategic with your applications.
A “soft credit pull” is what is done when you do any of the following:
- Get your free annual credit report for credit monitoring purposes via AnnualCreditReport.com.
- Apply for a job — a background credit check is considered a soft credit pull.
- Shop for a loan. Before you go ahead and file your loan application, it would be a good idea to shop around via loan comparison websites. The moment you actually apply for the loan and a credit check is done on you, however, that would turn into a hard credit pull. So still remain strategic with your loan shopping and loan applications.
A “hard credit pull” is what the bank, credit card company, or your lender will do for you when:
- You apply for a credit card.
- You apply for a mortgage.
- You apply for an auto loan.
- You apply for any type of personal loan.
Remember that the lending institution will need to know the nitty-gritties of your creditworthiness, so dissect your credit history, they will.
These are what you need to bear in mind regarding hard vs soft credit pull:
- For any consumer credit product you apply for, a hard pull type of credit check will be done on your credit report.
- For any major loan you apply for, still, a hard pull type of credit check will be done.
- When you collect your annual credit report, that is only a soft credit pull.
- When you use loan shopping services, they will only use a soft pull.
- Remember that a hard credit pull will shave off 5 to 6 points off your credit score.
- These 5 or 6 points that will be bumped off will only be returned to your account after 6 months.
You need not despair, however, as there are strategies for you to be able to cushion the blow of hard credit pulls that will be done if you’re thinking of applying for several loan products over a year:
- Plan and space out your applications at least 6 months apart. Remember that we gave you a note that it would take 6 months before a hard pull entry would be deemed negligible on your credit report? If you are applying for different loan products, make sure that you will apply only every six months.
- Don’t apply for a consumer credit product right before you apply for a major loan product like a mortgage. If possible, time your credit card applications in the first half of the year, and then your major loan applications in the next half of the year. This way, these two different loan and credit products will be spaced six months apart.
- Whenever you apply for a type of loan product or even consumer credit product, make sure that you know exactly what you need. This way, you will be able to streamline your applications. Also work on keeping your loan or credit applications to a set number that your credit score can handle.
- Look at your credit score before you decide to risk a few hard credit pulls. Remember that a good and safe credit score range is within 700 to 900. And even though “600″ is considered within the “good credit” range, some institutions will reject your loan applications if your credit score falls around the low 600′s to around 500. Given that each hard credit pull will take off 6 credit score points from your credit score, be wary if you’re applying for 5 accounts and your credit score is at 750. At that credit score, you should only apply for 1 to 2 accounts. If your credit score were at 800, a “gamble” of 5 to 7 applications would be sane enough.
Even if your credit report will clear within 6 months, you really shouldn’t flirt with letting your credit score plummet. Not that we’re wishing for it, but who knows if you will become a credit or identity theft victim tomorrow? Risking too much would put you in a vulnerable spot, credit-wise. Now that you know the difference between a hard vs soft credit pull, we hope we have dispelled the credit myth risks that say that ALL credit checks are damaging to your credit health. As you can see, there are some activities that are bad for your credit health, and some that are tolerable enough. We hope you’ll take our advice and be wise with your consumer credit applications!
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