The differences between hard and soft inquiries

When a prospective lender makes a credit inquiry to a credit bureau, there are two different options of data available for them to pull on your credit report: soft inquiries and hard inquiries. The main three bureaus in Australia being; Veda, Dunn & Bradstreet and Experian. Whilst both types of credit inquiries require a third party, like yourself or a lender, to view your credit report, only a hard inquiry can negatively impact your credit score. This blog edition provides some key insights into the differences between the two.

What is a hard inquiry?

Hard inquiries typically take place when a lender or financial institution, like a credit card or mortgage provider, runs a credit check when making a lending decision. They more commonly happen when you apply for a credit card, personal loan or a mortgage, and you generally have to authorise them. Hard inquiries may lower your score by a few points and can remain on your credit report for a period of up to 2 years. Your credit health does repair over time and the inquiry will usually fall away at this time. 

What is a soft inquiry?

These checks are more common when a person or a company check your credit report as a part of a background check. Real life scenarios such as; you are looking to rent a property. Other examples include employer background checks, or even checking your own credit score. Quite different to a chard inquiry, a soft inquiry may occur without your permission. However, it won’t affect your credit score and these inquiries may not show on your score or credit report, depending on the credit bureau.

The table below provides a guide to the variations between a hard vs soft inquiry:

Hard inquiriesSoft inquiries
Applying for a car, personal or business loan
Applying for a mortgage
Applying for a credit cardSometimesOpening an internet or cable contract
Identity verification check by a financial institution, such as credit union of stock brokerage
Renting a car
Requesting a credit card increase
Opening a current, savings or money market account
Opening a mobile phone contract
Any pre-approved loan or credit card offers
Checking your credit score
Background checks, for employment or other certifications which may include ID verification
Applying to rent a new home
Renting a car
Opening an internet or cable contract
Opening a current, savings or money market account

It’s always advisable to ask during any financial process the institution or vendor, which type of credit inquiry they may or may not perform. You are within your rights for them to disclose whether or not it’s a hard or soft inquiry.

Why a hard inquiry damages your credit score

Given the nature of financial services, a credit check is an industry standard and will be always be exercised when applying for a line of credit. It’s advised to refrain from applying for credit with multiple creditors in quick succession, as your credit score may be penalised for multiple inquiries because applying for too much credit triggers an element of desperation, or you simply don’t qualify for the credit you need. Whilst one hard inquiry will usually result in your losing a few points off your credit score (if any), multiple hard inquiries in a short period of time can be very damaging to your score. Therefore, keep the hard inquiries to a couple per year if possible, as the fewer inquiries made, the better your score will be.

Can I dispute a hard inquiry?

If you find yourself in a position where a hard inquiry occurred without your consent, look at your credit reports to see the full details of the inquiry, and decide if you should try to dispute it. Be aware that you can only contest hard inquiries that have taken place without your authorisation. If you did authorise them, on average it takes up to two years for them to disappear from your report. 

Legal information

Marketplace Finance Pty Ltd with ACN 608 607 227 and ACL 487316 is trading as Friendly Finance. Friendly Finance does not make finance or credit decisions and is not a provider. Friendly Finance helps customers find financial partners that meet their requirements.Financial partners may wish to obtain credit reports as part of the decision process. The line of credit available will vary depending on the financial provider. In order to help the government fight identity theft, the funding of terrorism and money laundering activities, providers may verify and record customer information. This website does not directly endorse a particular product and service.Any information on this website should be taken as opinion only.

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