Hard vs. Soft Credit Reports

When a lender requests or “pulls” your credit report from a credit bureau to review your file, that inquiry may be recorded as part of your file history depending on the type of report requested. There are two types of inquiries possible known as “hard” or “soft” credit pulls.

A hard inquiry happens when a lender reviews your credit report as part of their decision-making process. Because these inquiries are tied to an actual credit application, they are considered hard inquiries, and can affect your credit scores. Too many hard inquiries in a short period of time can be concerning to lenders because they may lead to numerous new accounts and indicate an increased risk of default. Opening several new credit accounts can mean you are having trouble paying bills or are overspending. As a result, hard inquiries have a temporary, negative effect on your scores and can take up to two years to clear. Current credit scoring models do understand the possibility that you are rate shopping for the best deal. Most will consider multiple inquiries for a certain product, such as a car loan or a mortgage, in a short period of time as a single inquiry, which will have a smaller impact on your credit score than multiple, separate inquiries. Obviously the goal is to minimize the number of hard pulls as much as possible.

A soft inquiry occurs in cases where you check your own credit or when a lender checks your credit to pre-approve you for an offer. Soft inquiries do not negatively impact your credit scores because they are not linked to a specific application for new credit. These inquiries have no effect on your credit scores as they are never considered as a factor in credit scoring models. Lenders do not make a credit decision solely on a soft credit report since they require a full report to make a final decision but they can give an accurate indication if you can be approved or not. In comparison, the soft report has much less detail than a hard one which contains only summarized information presented in an abbreviated version.

When available, ask your lender to soft pull your report or access your own report and provide it as a basis for a potential approval for the equipment financing you are applying for. An active business, regularly adding new equipment, will definitely benefit from this strategy in the long run.