What determines whether a credit inquiry is hard or soft, and why does a hard inquiry sometimes affect your credit score, when a soft inquiry does not?

The advantage of using Credible to see the actual rates and terms you can qualify for with multiple lenders is that eligible borrowers get personalized rates instantly — without affecting their credit score or sharing their personal information with lenders until they’re ready to choose a loan.

If you’d like to know more about what happens behind the scenes to allow Credible to show you personalized rates, see, “Inside a multi-lender marketplace: How Credible matches you with lenders.”

In this article, we’ll explain the difference between a “soft” credit inquiry and “hard” inquiry, and why using Credible to request personalized rates generates a soft inquiry that does not affect your credit score. We’ll also give you examples of the kind of activity that can generate a hard inquiry — including several that might surprise you.

What determines whether a credit inquiry is hard or soft, and why does a hard inquiry sometimes affect your credit score, when a soft inquiry does not? Read on.

Hard credit inquiries

Hard credit inquiries are triggered when you initiate a process with a lender or other creditor that might increase your debt burden. If you apply for a mortgage, a car loan, or a new credit card, your lender will ask for permission to check your credit, and that will count as a hard credit inquiry.

You don’t have to apply for a loan to trigger a hard credit inquiry. If you apply for an increased line of credit, that can generate a hard credit inquiry. If you’re about to sign a lease on an apartment and authorize your prospective landlord asks to check your credit report and credit score, that would count as a hard credit inquiry.

You might be surprised to learn that checking out a rental car with a debit card, switching cell phone plans, or getting a company business card in your name from your employer can also generate hard inquiries (more on those unusual situations below).

Why a hard credit inquiry can ding your credit score

Why does a hard credit inquiry affect your credit score? Because taking on more debt could affect your ability to make payments on the loans that you already have, or may take out in the future.

Remember, you credit score is, at its most basic, an evaluation of your ability to repay debt and the likelihood that you won’t be able to. According to Fair Isaac Corp., the creator of the widely used FICO score, a borrower with six or more hard inquiries on their credit report is eight times as likely to declare bankruptcy than a borrower with no inquiries.

How much does a hard credit inquiry hurt my credit score?

What will a hard inquiry do to your credit score? Again, according to Fair Isaac, a voluntary hard credit inquiry that’s initiated when you apply for credit may not affect your FICO score at all. If it does, it will typically take less than 5 points off. But if you don’t have many credit accounts — or your credit history doesn’t go back very far in time — a hard credit inquiry can take more than 5 points off your FICO score. So while a single hard credit inquiry probably isn’t worth getting too worked up about, generating several before taking out a loan may affect the rate you’re offered.

Soft credit inquiries

When you request personalized rates from Credible, you’re authorizing a soft credit inquiry that has no affect on your credit score.

That’s because at this initial stage in the process, you’re not actually applying for a loan. Credible is not a lender, but a marketplace that helps you find the best loan — and lender — for your unique situation.

Authorizing Credible to make a soft credit inquiry is what allows us to show you accurate rates. We’re connected to all three major credit bureaus — Equifax, Experian, and TransUnion — that collect information about borrowers’ credit lines and payment histories. That information can be plugged into proprietary formulas that generate credit scores.

Once you give us the go-ahead to do a soft credit inquiry, we can run your credit history and credit score through criteria used by our partner lenders and show you not only which ones are ready to lend to you, but on what rates and terms.

This is a process sometimes described as “prequalification.” Until you choose a loan you’d like to apply for, lenders don’t even see your information. Just checking your rates won’t hurt your credit score, or generate a marketing blitz from lenders who are eager to do business with you.

Another good thing to know is that you can always request a copy of your own credit report without triggering a hard inquiry. Checking your credit report before you apply for a loan is considered a soft inquiry — one that could save you money, since the interest rate you’re offered will often depend your credit score.

If there are mistakes on your credit report or other issues you can take care of, the best time to tackle them is before you apply for a loan (For tips on building a strong credit score, see “Your loan application was turned down — now what?“).

The bottom line is that if someone besides you accesses your credit report, it doesn’t count as a hard inquiry if you haven’t applied for a loan or initiated a transaction that could increase your monthly debt obligation.

Those offers for pre-approved credit cards that somehow find their way to your mailbox? Lenders have generally pulled the credit of everyone who gets one. But those inquiries only count as a soft pull, because the recipients aren’t necessarily looking for new credit.

‘Rate shopping’ periods

If hard credit inquiries — particularly lots of hard inquiries — can ding your credit score, what do you in situations where you need to apply to more than one lender?

If you’re buying a house or a car, for example, you might want to shop around for a lender. In some cases, the only way to see the rate you can qualify for with that lender would be to apply for a loan, generating a hard credit inquiry.

Or what if you’re apartment hunting in a tight market, and want to apply to several different landlords? Each time a landlord asks to check your credit report, that could generate a hard credit inquiry.

It’s easy to see how you might rack up multiple hard credit inquiries in a short period of time, wreaking havoc on your credit score — if the algorithms that generate credit credit scores didn’t cut you some slack.

These algorithms recognize that there’s a difference between a borrower who is going around applying for several new lines of credit in a short time frame, and a borrower who is checking with multiple lenders to find the best deal on a single loan.

If you’re applying for a student loan, mortgage, or car loan, hard credit inquiries received in the 30 days before a FICO score is generated don’t factor into your score. In other words, as long as you find a loan within 30 days of beginning your search, the search itself shouldn’t dent your FICO score. The newest versions of the FICO scoring formula allow for a 45-day “rate shopping” period.

Your credit score is also protected when you’re apartment hunting — the same rate shopping window applies to hard inquiries made by your prospective landlords.

Although the FICO score is perhaps the most well known credit score, there are many flavors of FICO score, and competing solutions like the VantageScore.

The VantageScore model treats multiple hard inquiries made within a two-week window by mortgage and auto lenders and utility companies as one inquiry. VantageScore says allowing 3-4 months between hard inquiries will allow your score to rebound.

Surprising ways to trigger hard credit inquiries

Once you realize why it is that hard credit inquiries can sometimes ding your credit score — because lenders are wary when individuals look like they’re preparing to take on a lot of new debt — you might think you could reliably predict what kinds of actions would generate hard inquiries.

But you might also be surprised by some of the seemingly mundane events that, according to Fair Isaac, can trigger hard inquiries.

If you’re fed up with your cellphone carrier, for example, the provider you’ve decided to switch to move to may insist on pulling your credit before approving you. It’s pretty easy to run up a cell phone bill that can have an impact on your monthly budget. So when you authorize a cell phone carrier to check your credit, that’s a hard credit inquiry.

Or say you need to rent a car, but have maxed out your credit card. Or maybe you’d just rather pay cash. In some cases you’ll be out of luck, because some rental car agencies will insist that you use a credit card. Rental car companies that do allow you use a debit card may ask you to authorize a credit check. Because an accident might leave you saddled with significant bills, that’s going to be a hard credit inquiry, too.

Or say your employer wants to issue you a company credit card for travel and other work-related expenses. If that credit card requires your personal guarantee to take care of any charges your employer disputes or is unable to pay, you’ll need to authorize a hard credit inquiry.

Credible is a multi-lender marketplace that allows borrowers to get personalized rates and compare loans from vetted lenders, without affecting their credit scores.