There are two types of inquiries that a company may make into your credit record,i.e. “hard inquiry” or “soft inquiry”.
If a company makes a hard inquiry into your credit record,it will damage your credit score temporarily.Your credit score may be damaged only by a hard inquiry while a soft inquiry does not affect your credit.
If you are planning to get a mortgage or you need a car loan then in this situation even a few points difference in your credit score cannot be ignored and this small difference in your credit score may magnify into a considerably big change. So we need to know that how can we decide whether the inquiry is going to be “hard” or “soft”?
Whenever,a person or organization has to take decision on lending you money,in this case they would make a hard inquiry into your credit record.If you apply for a credit card or need to get approved for mortgage loan or apply for a car loan,all these cases would lead to hard inquiries into you credit record. From a credit union’s point of view, these inquires into your credit record may be divided into different categories. Trans-Union terms these inquiries “regular inquiries,” Experian terms them “requests viewed by others,” and Equifax terms them “Inquiries in the last 12 months”. Normally, hard inquiries may temporarily bring your credit score down by a few points. After six months, their effect is removed.
All inquiries other than that have been discussed above may be categorized as soft inquiries. Soft inquires are usually used by a person or organization when they do not have to make a lending decision. However, this is not a hard and fast rule, not all the companies do this; exceptions to this may also be seen. Prospective employers and landlords will use soft inquiries to appraise your financial risk. Banks usually use them for confirmation of your identity. Mortgage lenders or credit cards base their decisions on soft inquiries into your credit record to pre-approve you for a loan or a card. When you check your own credit history, this is also regarded as a soft inquiry.
Apparently, differentiating between hard and soft inquiries seems quite simple, but this is not actually the case. In your view, applying for a checking account might be a soft inquiry. It is, in fact, a hard inquiry. Someone on a forum I visit regularly has prepared a list of financial institutions that make hard inquiries when requesting you credit history and credit score for reasons other than loan approval and credit card. This list may be very helpful to a common man who does not have much knowledge about financial matters.