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Many web sites explain the different effects of hard and soft credit inquiries, but none of them actually explain how the process works, so they're not useful for figuring out how borderline cases are determined to be soft or hard.

For example, this site vaguely talks about "Hard inquiries commonly take place ... soft inquiries typically occur ... Unfortunately, there are some gray areas where either a hard or soft inquiry could occur." Similarly, this one uses the weasel words "generally" and "typically" when describing when hard and soft checks occur. This site explains that the difference comes from whether or not the information is being used to make a lending decision, but again doesn't give any information about who determines the answer to that question and how.

What is the actual process by which credit checks do or do not affect one's credit score? For example, do the credit rating agencies see the complete list of all credit checks, and decide on their own which ones count as soft or hard? When someone performs a credit pull with a rating agency, does the agency ask them whether it's for the purpose of making a lending decision, and if so, how does it verify their answer?

Edit: it seems that people are taking my title question too literally. Obviously no one manually goes through every credit check and arbitrarily decides whether it's a hard or a soft pull. My question is, what is the process that determines the impact of a credit check on a credit score?

  • I updated my answer, after your edit. – CQM Jan 24 at 21:43
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The person doing the pull determines if it is a hard pull or soft pull.

It is up to that person to determine if either of those pulls are enough information to make a lending decision or any decision about you.

I don't know what differences in information a soft pull or a hard pull provides them.

But there are institutions that lend based on a soft pull alone, where soft pull should be seen as less consequential for the person with the credit score, as they don't show up on the credit score and therefore don't affect it.

Edit: it seems that people are taking my title question too literally. Obviously no one manually goes through every credit check and arbitrarily decides whether it's a hard or a soft pull. My question is, what is the process that determines the impact of a credit check on a credit score?

Okay this is a very different question. Only a hard pull impacts a credit score, and it is merely a part of the credit scoring formula, in the "inquiries" variable. Inquiries last two years, and in FICO Score 8 and Vantage Score 3 along with their derivatives it is known that the number of inquiries adversely affects your score to a small degree "upwards of 10%" according to Experian, and further inquiries don't impact that degree. All scoring models are expected to be immune to soft pulls and ignore them.

  • But are people allowed to do a hard pull on your credit history without your permission? I thought that they weren't, in which case the decision can't be entirely up to the person doing the pull - there must be some way to verify that they got the permission of the person being checked. – tparker Jan 20 at 19:01
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    @tparker they need permission. the person with a credit score grants permission in a variety of ways. the people that obtain permission to check a credit score are known to lie or have misinformation about whether it is a hard or soft pull. your entire idea about there being a conscious decision between hard/soft pull at the time of a pull is completely misguided, credit checkers already have a business process which has already established which kind of pull will happen, all the time, for everyone they encounter. you can frequently check forums online about it regarding a particular lender – CQM Jan 20 at 20:08
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Credit scores are provided by private companies and the exact details of the calculation are not provided to the public. This is why there are often what you call "weasel words" in articles about them, it's impossible to say exactly how they work (even people who know are probably under NDA).

The way it usually works is that there is a defined list of things that go into your credit report. The score is calculated based on the report. A rough list can be found in many places, such as wikipedia. As you can see, credit reports include loan applications. So it has nothing to do with whether the bank "decides" to be mean and hit your credit score when you ask about loans, the industry has just collectively agreed that applications for loans, just like extant loans, are useful information when deciding whether to lend to someone. So if you apply for a loan, it will show up on the report. The lender you applied to has little choice in the matter, they can't review your application and not report it.

The way so called soft checks work is by using some simple, general formulas based on your score, income and so on to make an educated guess regarding what loan you would get if you had applied. Since no loan application is taken place, it's not reported. For the same reason, there is no actual offer of a loan. If you actually want to borrow, you need to go back and apply for a loan. And any bank will tell you just because the "soft check" comes back saying you would qualify for an X dollar loan, doesn't necessarily mean you would actually get it when you do apply.

So there's no decision being made. When you go to a lender, if you fill out a loan application and sign it, that will go on your credit report. Consequently your score may be impacted, but probably not by much if you look at how it's weighted (10%). Probably the more relevant concern is that some lenders have policies against serial loan shoppers, so they flat out refuse to give you a loan if you've also applied to 20 more the same day. But that's a lender's own policy, not part of the score. Keep in mind that the score is just a summary, it is not binding for lenders, and they are free to interpret your entire credit history as they see fit, and ignore part or all of it when deciding whether to lend.

  • So am I understanding you correctly that the answer to my question is "The credit rating agencies are free to make the decision however they want. They claim that the determining factor is whether or not the person being pulled actually signed a loan application, but there's no way for anyone outside the agency to know whether or how they're verifying that."? – tparker Jan 20 at 19:09
  • @tparker That's about what I said in my last sentence, I think. Yes there is no way for you to verify any of it, your dog could actually be a robot double spying on you for all you know. But 99.9% of the time credit ratings are very consistent and predictable; loan applications go on your report, asking for estimate doesn't. And you can request for your report (but the lender's don't look only at your report). – Money Ann Jan 20 at 23:55

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