The Difference Between Hard and Soft Credit Checks

Written on August 13, 2014 by , updated on June 3, 2017

hard vs soft creditRunning credit checks on rental applicants is a landlord best practice, but not all credit checks are created equal.

How they differ matters, especially to renters, and can help landlords set their rental listings apart while building trust with applicants.

Credit inquiries, or pulls, come in two varieties: “hard inquiries” and “soft inquiries.

Hard inquiries lower an applicant’s credit score whereas soft inquiries do not.

Soft Inquiries

Soft Inquiries have no impact on a credit scoreSoft inquiries are credit checks that are typically ordered by the consumer when viewing his or her own credit report, and thus cannot affect lending decisions.

Checking your own credit through most third-party sites, or the official official government-sponsored site, counts as a soft inquiry.

The consumer is not the only entity able to perform a soft inquiry. Credit card or mortgage companies that you already conduct business with may sometimes check in on your credit and lending behavior through soft inquiries.

This is similar to the way a landlord will “drive by” his or her property, just to check on it, but not go inside the house.

Examples of Soft Inquiries

A soft inquiry occurs whenever you pull your own credit, regardless of who you share it with, or when a business “peeks” into your credit report but doesn’t get all the details.

  • Checking your own credit
  • Credit card or loan offers that are “pre-approved”
  • Employer credit check
  • Identity verification by businesses or banks

Hard Inquiries

Hard Credit InquiryOn the other hand, applying for a credit card, mortgage or other type of loan always triggers a hard inquiry. These pulls negatively effect a consumer’s credit score because credit bureaus assume that each hard inquiry is connected to a new loan or credit card – thereby changing the amount of overall debt and risk with the consumer.

Hard inquiries account for 10 percent of the overall credit score, appear on a person’s credit report for two (long) years, and reduce one’s credit score for one year. The exact reduction in score from one or more hard inquiries will depend on each person’s unique credit history.

Examples of Hard Inquiries

Generally, a hard inquiry occurs whenever someone else pulls your credit with your permission.

  • Mortgage applications
  • Credit card applications
  • Auto loan applications
  • Student loan applications
  • Traditional Tenant Screening

While credit reporting companies may count multiple hard inquiries of the same type within a short amount of time as a single inquiry, it’s also possible that separate inquiries will be counted separately and accumulate, causing a significant hit to the person’s credit score.

When Cozy CEO Gino Zahnd was moving to San Francisco, a potential landlord using a third-party credit report site, accidentally ran his credit score six times in three hours. Gino’s credit score dropped dramatically, and it took a while for his score to recover.

Gino bounced back and found another place to live, but the potential landlord unnecessarily damaged Gino’s credit. The damage could have been avoided if the landlord had used a tool that pulled a soft inquiry.

Some Inquiries can be Hard or Soft

While some types of pulls always register as hard inquiries and other types always count as soft inquiries, some can be either hard or soft, depending on different factors for each situation.

For example, car rentals can cause a soft pull if the car is reserved with a credit card or a hard pull if the reservation is secured with a debit card.

Traditional third-party screening companies cause hard inquiries, while any inquiry that directly involves the applicant is considered a soft inquiry.

Examples of Hard or Soft Inquiries

Depending on the tool used to pull the credit, these inquiries can be either hard or soft.

  • Rental Application/Lease
  • Car Rental Agreement
  • Opening a Checking/Savings Account
  • Cell Phone, TV, or Internet Agreement
  • Utility Service Agreement

The Negative Effect on Renters

For renters in high-density cities, securing a place to live may take months. In San Francisco, the average renter applies to 10 rentals before signing a lease.

I believe that looking for a place to live shouldn’t hurt your credit.

Much like Gino, each time a renter applies for a property, their credit is negatively affected, with each pull reducing the applicant’s score by a few points. It’s a complete nightmare for renters across the country.

Landlords Have the Choice

For landlords, there is no real benefit to pulling a hard inquiry over a soft one. The information is the same, though the method of acquiring it is different.

Method 1: The Hard Inquiry

Traditional ApplicationA landlord asks the tenant to fill out a paper application, including their Social Security number, and an authorization to pull credit.

The landlord then faxes, scans, or emails those documents to a third-party background and screening company who then uses their connection with the credit bureaus to pull the applicant’s credit.

Because the tenant had no direct involvement in the credit request, this type of pull would count as a hard inquiry.

Method 2: The Soft Inquiry

CR_sampleIn the last five years, all three major credit bureaus have begun offering or have partnered with companies like Cozy to offer landlords the ability to order credit reports with the help of the tenant.

The beauty of this method is that a landlord no longer has to collect a Social Security Number, and because the tenant is involved in the credit pull, it doesn’t hurt their credit score.

By requesting a credit check through a service designed specifically for landlords, such as Cozy Credit Reports, you will always pull their credit information as a soft inquiry. Subsequently, you’ll also get unprecedented security, privacy and control that will alleviate you of the burden of handling, storing, and disposing of sensitive information. It’s a win-win for everyone.

Related: Build credit history just by paying your rent

Summary

If you’re still faxing applications to traditional screening companies, please stop. There’s no need to hurt your future tenants credit score. Smart landlords are actually advertising that they perform soft inquiries when screening tenants. For those renters who care about their credit score, it’s an appealing benefit.

Smart landlords see the value in saying,

I need to request a credit report. But don’t worry, it won’t affect your credit score one bit.

Plus, it’s an easy way to let your future tenants know that you’re a serious landlord, and that you care how your actions affect them. In the end, it’s a fantastic way to start a strong landlord-tenant relationship.

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15 CommentsLeave a Comment

  • Munro Merrick

    Why not? Excellent advice. Anyone besides COZY provide the service? Or do we get the prospective tenant to sign a request and we mail it?

  • uso

    Can I legally ask the car rental company for a copy or at least the score of my credit check? How can I go about asking them to provide me with what they received?

    • Lucas Hall

      Hi USO,

      To be honest, I’m not really sure. If you were asking about housing, then yes, the landlord would have to provide the tenant with a way to get a copy of the report if the applicant was rejected based on credit data.

      However, if you have a SNN, you can get a free report from annualcreditreport.com – which is the only site sponsored by the US Government.

      I hope that helps. Please know that I’m not a lawyer nor is this legal advice.

  • David

    Im trying to settle an argument. Do landlords pull only credit reports, or do they also pull credit scores?

  • Dawn

    My credit score is 545. I’m looking at this apt. The landlord says she’s going to do a soft credit check. Should I go through with it or don’t waste either of our time

  • Patricia Bell

    Hi my credit score is two I had house renter to pull credit how many points will be taken off me

  • Maricela

    Hi, my question is. I just had a potential rental agent run our credit check, which I paid him $30 as a fee. He came back with my report and said it was excellent and offered me the apartment I was onquiring about. I have however found a better rental opportunity and am applying for it, can I request my report so that I may use the same credit check and no further inquiry may be done so that it may not affect my score any more? Can he deny it to me? Please help?!

  • Jo

    My husband is in the military and had to move from Tennessee to Virginia for training. The training lasted approximately six months before he returned to Tennessee and our whole family was relocated to Texas. Now he has inquiries for his apartment in Virginia AND for our rental home in Texas within a six month period. My question is: does this make him look irresponsible on a credit report and how long do these types of inquiries (rental/leased property agreements) usually stay on the report? Due to his job, we’ve had this situation several times and will likely have it again in the future.

  • bif

    many people in leasing offices don’t know or care to know the difference. I was told soft hit a few times by different leasing office people and they were wrong. I even had a bank teller at PNC tell me that a credit card app was a soft hit because it was internal. Wrong! I saw the hard hit on my credit report and then disputed it. The bank sent a letter to the credit agency saying I didn’t authorize a hard hit.

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