When you apply for a new credit card or loan, a credit inquiry is conducted. Inquiries also happen when you request a credit limit increase or a copy of your credit report. There are two types of credit inquiries – soft and hard – each affecting your credit score differently.

Soft inquiries do not impact your credit score and can occur when you are prequalified for a credit card offer or when you check your own credit report. Banks use soft inquiries to determine future credit increases or changes in interest rates. Prequalification is a common reason for soft credit inquiries.

Hard inquiries, on the other hand, can reduce your credit score by up to five points. They are typically initiated by lenders when you apply for a new loan or line of credit. Multiple hard inquiries within a short period may make you appear as a risky applicant. It’s important to minimize the number of credit inquiries to maintain a solid credit score.

Credit inquiries are made through credit bureaus like Equifax, Experian, and Transunion. The information a lender might see in a credit inquiry includes account listings, payment history, credit limits, balances, and personal information. Hard inquiries generally stay on your credit report for up to two years, but their impact is temporary.

Knowing when soft vs. hard credit inquiries are commonly used can help you prepare. Soft inquiries include checking your own credit report, prequalification offers, and a lender checking existing customers’ credit. Hard inquiries come from new credit or loan applications, requests for credit line increases, and responding to prequalification offers by applying for the card.

If there’s a hard inquiry you didn’t authorize, you can dispute it. Disputing unknown inquiries, accounts, and addresses in your credit report reduces fraud and can improve your score. Regularly checking your credit report is a smart way to catch potentially fraudulent changes.

Read more at Yahoo Finance: Soft credit inquiries vs. hard credit inquiries