There is a lot of confusion about soft and hard inquiries and the subject can be confusing. Some factors include credit card promotions, limit increase reviews, requesting a loan, or requesting a personal loan through your bank. These different types of inquiries have different effects on your credit report and there are some types you never want to have happen.

Hard Inquiries

These types of inquiries are requested by the consumer through a financial institution or loan generators. These financial institutions or loan grantors include: Car Dealerships, Lenders, Credit Card Companies and some Pay Day Loan Companies.

Keep in mind that these types of inquiries are requested from the consumer through another organization in hopes to obtain an unsecured loan. This means that the consumer is asking to borrow money.

If a consumer is requesting to borrow money the loan grantor will need to determine the consumers credit standing or credit worthiness. This is will generate a hard inquiry.

Soft Inquiries

These types of inquiries are also requested by the consumer but for a different purpose.

Examples would include when a consumer pulls their own credit report, when a consumer applies for car insurance or applies for a new job, when a consumer request a credit limit increase on their credit card.

Federal Law states that a consumer shall not be penalized when pulling their own credit report. This is because consumers have the right to know what’s in their credit and what items are affecting their credit score.

When you apply or inquire about some form of loan, credit card or any type of account that you may think will affect your credit, just ask. Just ask if they run a credit check, ask if they perform a hard or soft pull. Being proactive will eliminate the guess work and you will feel more confident in your own actions.

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Many consumers will get items in the mail that say they are Pre Qualified and some will get items in the mail that say Pre Approved. However, do not be fooled, there are differences. Pre Qualified and Pre Approved is very common in the mortgage industry and if you are unsure of the meaning behind them both, you could set yourself up for disappointment.

Anytime you are in the market for a home you first will need to speak with a bank, credit union or mortgage lender. These entities will first request to Pre Qualify you for a mortgage, and then the next step will be to Pre Approve you.

Pre Qualified
When you speak with a bank, credit union or mortgage lender they will ask you certain basic information. They will want to know your average yearly income, if you own a car, what bills you have, revolving debt, how much you owe on credit cards and they may ask if you have any outside payments such as child support or lien repayments. They may also ask if you have ever filed for bankruptcy or had a foreclosure in the past 3 years.

Next, your bank, credit union or mortgage lender will perform a generalized estimate on how much you will be able to borrow. They will also provide an estimate on interest rate, taxes and or insurance. The Pre Qualification step will give you an overview of what you may be able to handle and get approved for when purchasing a home. This step will not affect your credit score or rating and will have not list as an inquiry on your credit report.

Pre Approved
The Pre Approval step is a more in-depth look at your finances and will provide a more accurate picture of what you will be able to be approved for. This step will require all the information you provided during the Pre Qualification process and query that information against your credit report.

This step will request a snap shot of your credit report and your financial commitment standing. Your credit report will receive an inquiry and the lender will then base their decision on the information listed in your credit report. If your credit report is not strong enough then the bank, credit union or mortgage lender may suggest options you can do in order to improve your credit score or credit rating.

Once you are Pre Approved you will have more confidence that you will be able to purchase your home. The next step will be to choose a home that is of equal value or of less value that you are approved for through the lender.

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What are they?

Credit inquiries happen when a potential creditor requests a copy of your credit report to determine credit worthiness.

Inquiries remain on your credit report for a total of two years. FICO scores only consider inquiries from the last 12 months to be important. FICO scores do a good job of distinguishing between a search for many new credit accounts and rate shopping for one new account. Meaning if you are purchasing a home and are trying to obtain a loan FICO understands that you may have your credit reports looked at many times in 1 month.

Inquiries may be removed; however you will have to go directly to the creditor to get these items removed. At one time you were able to dispute through the Credit Agencies, now they are making it harder to remove. Equifax will still remove inquiries but you have to have a good reason for the removal.

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