A hard inquiry is made on your credit report whenever a business checks your credit report because you made an application for a credit card, loan, or other service, i.e. insurance. A soft inquiry is made whenever you check your credit report, a business checks your credit report for promotional purposes, or a business with which you already have an account checks your credit report.

When you check your credit report, you’ll see both hard inquiries and soft inquiries. When potential lenders check your credit report, they will only see hard inquiries. Soft inquiries don’t affect your credit score. It’s only the hard inquiries that will negatively impact your credit score. How much varies by how close in time the inquiries are made, how frequently they have been and by the scoring company policies, typically 3-9 points but as little as 2 or as much as 20 or more. Though all inquiries – hard inquiries and soft inquiries – remain on your credit report for two years, hard inquiries will only impact your credit score for one year.

Overall, a good payment history, being conservative about debt and maintaining a good credit reputation are much more important than inquiries in the final score. Isn’t that rather a good thing!

Whether you’re buying a new home, refinancing an existing home or or buying a new car, your credit score affects your interest rate and the final purchase costs. It pays to know that number and plan accordingly.