If you’ve ever had to borrow money, you probably already know that there’s a good chance the lender will check your credit before giving you the funds. Whether it’s for a car loan, mortgage, or some other type of loan or financing, lenders want to assess the likelihood of you paying them back before taking on the risk of lending you money.
What you may not know is that not all credit inquiries are created equal. Certain credit inquiries, usually those that directly affect a lending decision, are considered “hard” and generally impact the prospective borrower’s credit score.
On the other hand, some inquiries are considered “soft,” and do not affect credit scores. The latter traditionally have been used for informational purposes (like conducting a background check) but some lenders nowadays use them to determine a customer’s eligibility as well.
Let’s dive a little deeper into the world of credit inquiries, how they can impact a customer’s credit profile, and which type is used when a customer wants to check their financing options through Wisetack.
Both soft and hard credit inquiries, also referred to as “checks” or “pulls”, are generally conducted in the same way: a company (e.g., a bank or other financing provider) looking to learn more about your credit profile will reach out to a credit bureau and ask about your credit history.
Your credit history, in summary, keeps track of your debts and how you’ve managed to pay them. It documents three key factors:
All this information is then documented on your credit report. Of course, we couldn’t talk about credit without mentioning the famous credit score, which is essentially your credit “grade.” It’s a number calculated by the credit bureaus that quantifies your creditworthiness using a universal scoring model (either FICO® or VantageScore®).
When a company runs a credit check on you, they can get access to some or all of your credit report — and potentially your credit score. (Usually, a hard credit pull will generate a more comprehensive version of your credit report.)
Now that you know exactly what a credit inquiry is and how it’s conducted, let’s learn a little more about what the two types are used for, and how they affect customers differently.
A hard credit inquiry is often conducted by a lender before approving a borrower’s loan — e.g., a mortgage loan application. With this type of credit check, the lender also legally needs your consent before proceeding.
Because a hard credit check means you are likely to take on a new debt, it often lowers your credit score. Most borrowers will see their FICO score go down five points or less following a hard pull, and this “ding” will usually remain on a their credit score for up to a year — though the exact point reduction and length of impact varies depending on the person’s credit history and the timing of the hard pull.
Too many hard credit checks in a short period of time can make lenders see you as a high-risk borrower, and reduce your chances of obtaining a loan. However, an exception may be made if you apply to multiple lenders while trying to get one specific type of loan. For example, if you’re applying for a mortgage through various lenders within a short time window, this may be counted as one credit inquiry, and you may avoid an impact to your score each time.
Hard credit inquiries also tend to have a greater impact on those with few accounts and/or a short credit history, and can stay on your credit report for two years.
Soft credit checks are often used for reasons unrelated to lending, like when you apply to get an insurance quote, check your own credit score, or have a new employer run a background check on you.
However, many companies today are using soft pulls when determining a customer’s eligibility for credit and to present financing options . As a result, customers can get a sense of how much they can borrow and what their monthly payments would be — with no credit impact.
One last note about soft pulls: they can technically run them without your explicit consent and sometimes happen without your knowledge.
When a customer submits a prequalification or financing application, a soft credit check is pulled to determine what options are available to them. This means that customers can see how much they could qualify for and what their monthly payment would be — without having to worry about their credit score.
We pride ourselves on helping borrowers get the services they need while providing them a transparent, fair, and simple financing experience. In addition to only requiring a soft pull when determining options, the application process through Wisetack only takes seconds, and presents highly competitive rates — including 0% APR loans for qualified customers*. (And there is never deferred interest.)
As a result, customers love us: our average NPS (Net Promoter Score) is at a sky-high 78. (For reference, the average NPS in the financial services industry is somewhere around 56 or 44, depending on who you ask.)
*All financing is subject to credit approval. Your terms may vary. Payment options through Wisetack are provided by our lending partners. For example, a $1,200 purchase could cost $104.89 a month for 12 months, based on an 8.9% APR, or $400 a month for 3 months, based on a 0% APR. Offers range from 0-35.9% APR based on creditworthiness. No other financing charges or participation fees. See additional terms at http://wisetack.com/faqs.