When someone pulls your credit, it’s reported as either a hard or soft inquiry. Hard inquiries may cause a short-term dip in your credit score, which can raise concerns for potential lenders. Soft credit pulls have little to no impact on your score and generally don’t influence lending decisions.
Soft credit checks are indisputable since creditors, lenders, and lenders can run them without prior approval. A hard credit check will remain on your profile for two years and could impact your score for up to a year.
A hard credit pull done without your approval is considered fraudulent activity. In that case, you can file a dispute directly with the credit bureaus to remove it from your profile.
Hard inquiries (and their subsequent drop in your consumer credit score) don’t just hurt your chances of successfully opening a personal line of credit or a bank loan. Since you're personally responsible for business debts, excessive consumer inquiries may hinder your ability to secure business funding.
When small business owners apply for funding, their financial circumstances will be scrutinized as, or more, carefully than their business. Funding a small business is risky, so banks and other prospective lenders require assurance that you’ll repay your obligations even if your company goes out of business.
If lenders see too many inquiries on your personal credit report, they may assume that you’re desperate for cash and reject your business loan request. Therefore, you should do what you can to find and remove invalid hard inquiries from your consumer credit profile.
Everyone is entitled to one free credit report per year from each of the three consumer credit bureaus. By taking advantage of this benefit and examining your statements regularly, you’ll be better able to spot and manage errors as they occur.
If you spot a hard inquiry by a company whose name you don’t recognize, there’s a chance it’s the result of identity theft. However, some unfamiliar inquiries may still be valid.
So how do you make the distinction between fraudulent and legitimate credit pulls?
First, consider whether you’ve recently:
Given anyone your Social Security number (SSN) - Some service providers may request your SSN without clearly stating that a credit check will occur.
If you provide your SSN, this could be interpreted as giving your permission.
Sought financing with a mortgage servicer or car dealership - Occasionally, you might think you are applying for a pre-approved offer with one company, only to see multiple inquiries from other lenders on your report. This could be due to rate shopping - an effort to secure the lowest possible interest rate for your loan. All of the inquiries are considered valid, but as long as they occurred within a few weeks of each other, they only count as one pull.
Applied for a retail store charge card - Occasionally, lenders and retail stores use third-party financial service companies to manage their charge cards. When you authorize a store card check, the inquiry may appear under the name of a third-party bank instead of the store.
If you are still unsure about a specific credit pull, see if your report includes contact information for the entry. You may be able to call and seek clarification directly from the company that made the hard inquiry.
What happens when you’ve confirmed the inquiry occurred without you granting your lender permission? You should then file a dispute with both the credit bureau and the company that made the inquiry. Send your formal dispute by certified mail to each credit bureau and the lender or company that did the pull.
Your letter should include the following:
Each bureau, Experian, TransUnion, and Equifax - also allows you to dispute errors through online forms or phone calls. This action will trigger a bureau dispute-center investigation into the incorrect information on your report.
If the loan inquiries accompany a credit card or loan you didn’t apply for, you must clear up the error as soon as possible. This may be a warning sign that identity thieves are using your SSN to open accounts fraudulently.