Hard vs. Soft Credit Pulls: What's the Difference and
How is my Credit Score Impacted?
More than half of American consumers are concerned about their credit score — the three-digit number that can unlock access to lower insurance premiums, ideal financing scenarios (such as better terms and lower interest rates), greater options for renting, and more.
According to an online survey conducted in late 2023 by the Harris Poll, 58% of participants were worried about hurting their credit score in the next 12 months — while 79% of Americans reported that they had been actively trying to improve creditworthiness.
Credit score can be determined by a number of factors, and most commonly refers to your FICO score — a type of credit report used by lenders to determine the risk of extending credit (or administering a loan). This score ranges from 300 – 850, and is generally calculated based on your:
- Payment history
- Amount owed
- Length of credit history
- New credit
- Credit mix
Today, the National Energy Improvement Fund (NEIF) is going to be walking consumers and potential borrowers through what it means to open new lines of credit, as well as the role that credit pulls — also known as credit inquiries — can play on your overall score.
Credit Pulls — What Are They? What Are the Types?
In the context of credit scores, if you’re frequently applying for new lines of credit, it may indicate that you’re facing financial trouble. Therefore — additional lines of credit can lower your credit score a bit.
Even if you are not applying for new credit often, each time you do apply for something like a loan, rental application, or even a credit card, the responsible lender or financial institution will perform what is known as a credit pull.
A credit pull, essentially, means that your credit report is being reviewed.
There are two types of credit checks: hard pulls and soft pulls. An overview of each type, as well as the context they typically exist in, is below.
Hard Pulls
Hard credit pulls occur when a lender or other entity runs your credit report with the intention of making a lending decision, such as supplying a loan, mortgage, or credit card. The credit report results, along with your credit score, help the lender assess how likely you are to repay loans and other debts on time.
What’s the impact on your credit score of running a hard pull?
According to TransUnion, yes — a hard inquiry can lower credit score, but it tends to be one of the less influential factors determining your score. While it’s helpful to know that these can remain on your credit report for around two years, typically, the impact of a hard credit pull lessens over time.
Soft Pulls
Soft pulls, on the other hand, do not occur in the context of applying for new credit. A soft inquiry, for example, may be conducted as part of a background check or even by your credit card issuer to determine eligibility on rewards or other promotional offers.
Since these kinds of pulls aren’t connected to credit applications, they will not show on official credit reports — and thus do not impact your credit score. A soft pull also includes the times you might even check your own credit report as well.
As you explore options for financing and available programs through NEIF, our Energy Lending team remains a resource for all things credit! If you have any questions — at any point in the process — regarding credit, or how your score is potentially impacted, please direct them to lending@neifund.org.
SOURCES: Credit Karma, Investopedia, NerdWallet
