For many an individual and business, access to credit depends on FICO scores and the contents of credit history reports maintained at the three major credit bureaus – Equifax, TransUnion and Experian. A “pull” is a credit inquiry from a legitimate entity, made in order to check your credit.
A hard pull is one that can affect your FICO score, whereas a soft pull has no effect. This is important to remember, because too many hard pulls can lower your credit score. The Fair Credit Reporting Acts sets limits on why and when your credit report can be pulled.
Let’s take a closer look.
All credit inquiries that are not credit checks by a prospective lender are soft pulls. First, any inquiries you make upon your own credit reports or FICO scores are automatically a soft pull credit check, so feel free to make as many as you like. Other soft-pull examples include:
- Credit inquiries from businesses that want to offer you goods or services (for example, a promotional offer from a credit card issuer or mortgage lender)
- Inquiries from businesses where you already have established a credit account.
- Pre-approved loan and credit card offers
- Employers and others performing a background check on you. For some reason, employers tend to gravitate towards job candidates with good credit ratings.
As you can see, you may be subject to a soft pull and not even know it. Often, soft pulls help businesses save money when canvassing for new customers, because these inquiries can rule out some potential prospects, saving the business paper and postage costs.
Hard pulls result when a potential lender wants to review your credit application. Common credit applications that trigger hard pull credit checks are ones for credit cards, mortgages and car loans. Each credit check is counted as one inquiry. However, you get a break if you are “rate shopping,” in that all inquiries for the same purpose, such as a mortgage, business loan, rental property, student loan, etc., within a 45-day period are counted as only a single hard pull. This has implications – if you are apartment hunting, its best to do it within a short period if you want to maintain your FICO score.
Some pulls might be hard or soft, depending on the particular circumstances. These include:
- Verification of identity
- Car rentals
- Obtaining an Internet or cable account
- Opening a bank account
- Requesting a higher credit limit
- Contracting for a cell phone account
Pulls and Scores
Although a hard pull can affect your FICO score, the impact upon your score can vary. The score is sensitive to several factors:
- The inquiry must be a voluntary application for credit
- The number of new accounts you have recently opened
- The percentage of your accounts that have recently been opened, by account type
- The number of recent credit inquiries you have had
- The amount of time that has elapsed since you opened an account, by account type
- The amount of time since the last credit inquiry
The good news is that a single hard pull might not affect your credit score at all, and even if it does, the cost is usually less than five points. The bad news is that if you have a short credit history or just a handful of credit accounts, a hard pull can have a greater impact on your credit score. So can multiple hard pulls that are not categorized as rate shopping. Wonder why? Here’s the dirty little secret – consumers with at least six credit inquiries are 8X more likely than those with no inquiries to file for bankruptcy.
By the way, you can dispute a hard inquiry performed without your permission. Authorized hard pulls usually hang around on your credit history for a couple of years.
Soft Is Better
Now, if you are looking for a commercial business loan, keep in mind that IOU Financial uses soft credit pulls that won’t affect your credit score. When you combine this with our fast, no-hassle process and convenient payment arrangements, it’s easy to see why IOU Financial is growing into one of the premier commercial lenders in the U.S.