Understanding Hard vs. Soft Credit Checks

In today’s world, credit checks (also commonly referred to as “inquiries” or “pulls”) are commonplace, and we don’t always consider the pros and cons of letting lenders look into our reports. Understanding the difference between a hard and soft check can make all the difference.

Hard inquiries remain on your credit report for two years and are a sign that you are actively seeking new credit. While, soft inquiries aren’t visible on your credit report (except to you) and don’t impact your credit score and stem from a variety of causes.

When are Hard Inquiries necessary?

  • Opening an insurance policy
  • Applying for a mortgage, credit card or loan
  • Opening a checking account
  • Joining a credit union
  • Applying for utilities, such as cable, phone, gas or an electric account
  • Renting a car (particularly when you pay with a debit card)

When are Soft Inquiries necessary?

  • When you are pre-approved for a credit card (you typically will receive an offer in the mail)
  • Starting a new cell phone contract
  • Starting a new job (employer credit check)
  • Using a bike share program
  • Applying for an apartment
  • Working with a financial education organization (such as ClearPoint) who may pull your credit to provide personalized advice for you

At the end of the day, credit report pulls are common practice, but they do have an impact. To limit the negative effect of hard inquiries on your credit, try to avoid unnecessary credit accounts and be strategic when you shop for an equipment lease or working capital loan. Next time you’re asked to authorize a credit pull, be sure to ask what type it is, and move forward only if necessary.

To learn more about financing options for your business, contact Lease Genie today.