What is a Hard Credit Pull and Why Does It Hurt My Credit Score?

The time has come. You’re opening a new business credit card account, or perhaps applying for a small business loan, and you know exactly what’s coming: Someone’s going to have to perform a credit check.

Even if you have stellar credit, you panic a bit. You ask yourself, is this going to lower my credit score?

Chances are, maybe. It depends on whether the credit check is a hard credit pull or a soft credit pull. The type of pull depends on the type of financing you’re applying for. While soft credit pulls, or credit inquires, don’t affect your credit score, hard pulls do.

Read on for an explanation of hard credit pulls, when you can expect a lender to perform one, and what it does to your credit.

Hard credit pulls vs. soft credit pulls

A hard credit pull is simply a full credit check that occurs when a bank or other lender is deciding whether or not you would be a desirable (i.e., creditworthy) customer. With a hard pull, a lender is able to get more information on your past credit behavior than it would with a soft pull.

Hard pulls require your consent before they occur. This means companies can’t randomly decide to do a hard pull on your credit and approve you for a credit card or loan without your permission.

Soft pulls, on the other hand, often occur as part of a background check that someone may perform on you. They also don’t require your permission. So, the next time you receive a preapproved credit card offer in the mail, understand that that credit card issuer has already performed a soft inquiry on your credit. However, there are also times when you initiate a soft pull yourself.

If you’ve ever had a background check performed on you before being offered a job, that would have involved a soft credit pull. Additionally, preapproved credit card offers or insurance quotes you receive would involve a soft pull. Finally, soft credit inquiries occur when you check your credit yourself on sites like Credit Karma.

RELATED: 4 Things Hurting Your Credit Score (And Why You Need to Know This)

Hard pulls are a common part of any loan or credit application. They typically occur when you apply for one of the following:

• Personal loan
• Business loan
• Student loan
• Line of credit
• Credit card
• Mortgage
• Auto loan
• Apartment rental

How do you remember which is going to happen? Simple: If you took the initiative to apply for a loan or credit yourself (and it doesn’t specify “no credit check required”), it’ll probably involve a hard credit pull.

Of course, there are other instances in life that will require a credit check in the form of either a hard or soft pull. Things like utilities, internet, and cable providers will often do a credit check, and it could be in the form of either a hard or soft pull.

Will a hard pull affect my credit?

Put simply, yes. A hard credit pull will affect your credit; however, not by much. You can expect your score to be lowered by 5 points for about 6 months, but that doesn’t always happen. On the other hand, soft credit pulls do not affect your credit score. (A nice thing to remember next time you want to check your credit yourself!)

So why does the score decrease with a hard pull? Why does applying for a loan or credit card affect your credit score in any way? Your score takes a slight dip following the addition of a hard inquiry to alert lenders that you may have new debt that hasn’t surfaced on your credit report.

Of course, even if you have many different credit cards and manage to make all of your payments on time (and hopefully in full), you likely won’t have to worry. And for most people, a 5-point credit dip isn’t going to be too damaging, especially if you’re practicing credit-healthy behaviors.

Additionally, FICO understands when you’re simply being a savvy customer. Shopping around for the best mortgage rate? Just be sure to file all your different applications within a short time frame (the recommended period varies between 14 and 45 days depending on your source), and all of those will likely be treated as one single inquiry.

But since hard pulls do affect your credit score, don’t apply for loans or credit cards too often—those 5-point dips will certainly add up if you apply for a new loan product every month. Keep on top of your score, and if it’s lower than you’d like it to be, wait a bit before opening a new account. You’ll thank yourself later.

RELATED: 5 Tips to Quickly Boost Your Credit Score

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