Differentiate between a soft inquiry and a hard inquiry, and indicate which can affect your score.

Differentiate between a soft inquiry and a hard inquiry, and indicate which can affect your score.

• A. Soft inquiries do not affect scores; hard inquiries can cause a small temporary drop.
• B. Soft inquiries always cause a major drop; hard inquiries never affect scores.
• C. Soft inquiries are visible to lenders; hard inquiries are not.
• D. Soft inquiries require consent; hard inquiries do not.

Answer: (A)

A soft inquiry is a harmless check of your credit that doesn’t affect your score, while a hard inquiry is a formal credit pull that can cause a small, temporary dip. Soft inquiries happen when you look at your own score, when lenders do prequalification checks, or when background checks occur, and they’re not visible to lenders or used to set terms. Hard inquiries occur when you apply for new credit and a lender examines your full credit report to make a lending decision; that brief look can nudge your score down a bit, though the effect is small and tends to fade over time. If you’re shopping for a loan, multiple hard inquiries within a short period are usually treated as a single inquiry by scoring models, so you won’t be penalized for rate shopping as much as you might fear.

A soft inquiry is a harmless check of your credit that doesn’t affect your score, while a hard inquiry is a formal credit pull that can cause a small, temporary dip. Soft inquiries happen when you look at your own score, when lenders do prequalification checks, or when background checks occur, and they’re not visible to lenders or used to set terms. Hard inquiries occur when you apply for new credit and a lender examines your full credit report to make a lending decision; that brief look can nudge your score down a bit, though the effect is small and tends to fade over time. If you’re shopping for a loan, multiple hard inquiries within a short period are usually treated as a single inquiry by scoring models, so you won’t be penalized for rate shopping as much as you might fear.