What Is a Hard Credit Check?

When you’re applying for credit—whether for a loan, credit card, mortgage, or even certain services—you may encounter a hard credit check, also known as a hard inquiry. Unlike soft credit checks, which don’t affect your score, hard credit checks can have a minor impact on your credit report.

This type of inquiry requires your consent and provides a detailed view of your credit history to the lender, allowing them to assess the risk of extending credit to you. 

Key Takeaways

• A hard credit check requires consent and can temporarily lower your credit score.
• A hard credit check is accpetable for major purchases, especially loans.
• You should expect a hard credit check to lower your credit score, but it should resolve in a few months.

What Is a Hard Credit Check?

A hard credit check, also known as a hard inquiry or hard pull, is a comprehensive review of your credit report by a lender or financial institution when you apply for credit, such as a loan or credit card. This inquiry requires your explicit consent and can have a temporary impact on your credit score.

How a Hard Credit Check Impacts Your Credit Score 

Most people believe any credit check can impact their credit score, but only hard credit checks impact your score. When you fill out an application needing a hard credit check, the inquiry will appear on your credit report soon after.

A hard inquiry sticks around on a credit report for up to two years. Depending on why the inquiry occurred or how many other credit checks have hit your score recently, your credit score can take a minor hit, usually no more than five points per check.

Conversely, a soft credit inquiry does not appear on your credit check or impact your credit score. However, there may be times when a soft inquiry is later followed up by a hard credit check before a lender approves any funds or credit issuance.

The Purpose of a Hard Credit Check

Hard credit checks usually serve a different purpose than soft credit checks. Hard credit checks usually occur for:

• Mortgage applications. Home mortgage applications use credit checks to help determine the amount of loan, interest rate, and discounts an applicant qualifies for.
  
  
• Auto loan applications. Auto loans require a hard credit check to authorize an amount of credit to pay for the vehicle.
  
  
• Student loan applications. Student loan applications by private lenders determine how much a student can receive and if they need a cosigner on loan.
  
  
• Personal loan applications. Hard credit checks help lending institutions determine how much a person can repay a personal loan.
  
  
• Credit card applications. Most credit cards require a hard credit check to determine the size of credit and any specific card offers an applicant qualifies for.
  
  
• Requests for credit limit increases. If an individual requests an increase in credit limit on an existing line, the lender may require a hard credit check to ensure the applicant qualifies.
  
  
• Utility applications. Utilities are used before payment, similar to credit lines. Companies expect reimbursement at the end of every month. As such, most utility providers require credit applications for homeowners.
  
  
• Internet service applications. Like electricity and water services, internet providers give customers internet access on a prorated basis. You pay them back each month for the service. Thus, they require a credit check.
  
  
• Apartment rentals. Landlords like to know they’ll get paid rent on time. As a result, hard inquiries occur to verify your payment history and check for any defaults that may point to a risky tenant.

Why Hard Credit Checks Matter

Hard credit checks protect the lender from irresponsible applicants. FICO estimates that consumers with five or more credit checks in a year are six times more likely to become delinquent on credit obligations.

In short, hard inquiries generally occur in financial situations. Lenders, landlords, and service providers want to know that they can trust you to pay your rent, bills, and loans on time. 

Who Uses Hard Credit Checks?

Most institutions that utilize hard credit checks do so for financial reasons. So, you’ll generally see these types of institutions using hard credit checks:

• Banks
• Credit unions
• Private lenders
• Credit card companies
• Mortgage lenders
• Electricity or water companies
• City utility departments
• Internet service providers
• Cell phone service providers

Pros of Hard Credit Checks

Some pros include the following:

• Hard credit checks allow lenders to protect themselves and other lenders by tracking applications on credit reports.
• A successful hard credit check can authorize credit for applicants.
• Sometimes, multiple hard credit checks (for a mortgage or student loans, for example) can count as a single credit check in a short time frame.

The Cons of Hard Credit Checks

The downsides of hard credit checks occur for lenders and applicants alike:

• Applicants can see their credit score drop several points. 
• Lenders can only use hard credit checks for a specific credit application.
• Hard credit checks stay on credit reports for up to two years.
• Multiple hard credit checks over a year can severely damage a person’s credit score.

Final Notes on Credit Checks

When it comes to credit checks, remember that a hard credit check applies to a specific credit application and impacts your credit score, while soft credit checks serve a more general purpose and don’t hit your credit score.

Understanding the different types of credit checks can be a daunting challenge. The good news is that the team at Simple Fast Loans can help you navigate the questions in the credit check process. So, don’t be afraid to reach out during your application process. We are here to help!

Note: The content provided in this article is for informational purposes only. Contact your financial advisor regarding your specific financial situation.