Understanding Your Credit Report: Hard vs. Soft Inquiries
by Rachael Grattan, Senior Client Services Associate
Many of our clients are understandably concerned about identity fraud and protecting their good credit status.
We were recently working with one of our clients, who contacted us after receiving an alert from his credit monitoring company about a new inquiry on his credit report.
He recognized the company (it was one providing services inside the home), and knew he had not authorized them to look into his credit. To err on the side of caution, he placed a fraud alert with the credit reporting agencies.
In helping him resolve this issue, we compiled some valuable information about credit inquiries, and how to protect yourself from unauthorized access to your credit history.
Here’s what you need to know:
Some credit inquiries can be safely ignored. Credit reporting agencies break inquiries into “soft inquiries” and “hard inquiries.”
Hard inquiries are ones that can affect your credit scores, says consumer advocate Gerri Detweiler on Credit.com. “They indicate that you are actively trying to get credit, whether it’s a car loan, mortgage, student loan or credit card,” she explains. Our client’s was a “hard inquiry,” which rightly caused his worry.
Soft inquiries, on the other hand, aren’t generated by shopping for credit and they do not affect your scores, says Detweiler. “For example, if a lender sends you a pre approved credit offer, that inquiry is called a “promotional” inquiry and it’s a soft inquiry. And when you check your own credit score, the same thing applies.”
As an example, when I recently checked my free annual Experian credit report (https://www.annualcreditreport.com), I had 36 soft inquiries. These included 3 car insurance companies, numerous credit card companies (including some whose cards I carry, and others I’ve never applied for), local car dealerships, and even a few identity protection companies.
Detweiler says that if you already have a credit card or loan with a lender, they may review your credit history from time to time. That’s also a “soft inquiry” and the results don’t affect your credit score, she explains.
If our client had been alerted to a “soft inquiry,” we would have advised him that no action was needed.
(For more information on types of inquiries and how they could affect your credit score, visit the myFico.com site).
Here’s 3 quick and easy tips to protect your credit:
1). To protect yourself, you need to check your credit report regularly (https://www.annualcreditreport.com), or pay a credit monitoring company to check it for you.
2). If you notice any credit cards, loans or new accounts that you did not open or any hard inquiries you have not authorized, take action right away.
3). If your credit report shows a lot of harmless (but annoying) soft inquiries, consider opting out of pre approved credit offers (www.optoutprescreen.com). I used to receive pre-approved credit card offers almost daily. After opting out a few months ago, I still receive an occasional unsolicited credit card application, but am happy to have much less junk mail filling up my mail box. Plus, cutting down on unsolicited credit applications reduces opportunities for credit fraud.