What differentiates hard and soft credit inquiries?

The distinction between hard and soft credit inquiries centers around the context and impact of each type on an individual's credit profile.

Hard inquiries occur when a financial institution checks your credit report for the purpose of evaluating your creditworthiness during application processes for loans or credit cards. This type of inquiry signifies that an individual is seeking new credit, which can potentially indicate a higher risk to lenders. As a result, hard inquiries typically remain on a credit report for up to two years and may cause a temporary dip in credit scores, reflecting that the individual is taking on more debt.

Soft inquiries, on the other hand, are usually performed for background checks, personal credit assessments, or pre-approval offers. These inquiries do not affect credit scores and do not indicate that the individual is attempting to acquire new credit.

Understanding the specific circumstances under which these inquiries occur clarifies why the statement regarding hard inquiries related to credit applications is correct.