If you’re navigating the world of credit in preparation for buying a home, you’ve probably heard the terms “soft” and “hard” inquiries thrown around. But what do they actually mean, and how do they impact your financial journey? Let’s dive in and examine the differences between these two types of credit inquiries.

What are soft credit inquiries?

Soft inquiries are like the friendly taps on your shoulder in the world of credit. They occur when your credit report is accessed, but not for the purpose of making a lending decision. Here are some common scenarios where soft inquiries come into play:

  1. Checking Your Own Credit: Ever wondered about your credit score? When you request a copy of your own credit report, it’s considered a soft inquiry. It’s a proactive step toward understanding your financial health, and it won’t lower your credit score.
  2. Employment Background Checks: Many employers conduct background checks, which may include a review of your credit history. However, rest assured that these checks are typically soft inquiries and won’t impact your credit score.
  3. Pre-Approval Offers: Have you ever received an offer from a credit card company in the mail? These pre-approval checks are often based on soft inquiries. The issuer is simply gauging your eligibility for their offers without making a firm lending decision.

What are hard credit inquiries?

Hard inquiries are the ones that can cause a slight dip in your credit score. Unlike soft inquiries, hard inquiries occur when a lender reviews your credit report as part of the decision-making process after you apply for a new credit account.

When you’re seeking a mortgage, auto loan, personal loan, or credit card, the lender will likely perform a hard inquiry to assess your creditworthiness. Each hard inquiry can shave off a few points from your credit score, so it’s essential to apply for credit wisely, not randomly or excessively.

In short, soft inquiries offer insight without impacting your credit score, while hard inquiries should be approached strategically to maintain a healthy credit rating.

Understanding the difference between soft and hard inquiries is an important step toward making informed decisions about your credit journey. Whether you’re monitoring your own credit or exploring new borrowing opportunities, knowing how these inquiries work can help you navigate the financial landscape with confidence.

Here at Homeowners, part of our job is to help you stay informed and remain proactive as you embark on your journey toward financial well-being. There’s no better way to do that last part than to explore the potential wealth-building benefits of homeownership. Contact your local Homeowners Licensed Mortgage Professional today!

How can we help?