Hard inquiry / soft inquiry question

[sisco]

I'm trying to better understand the inquiry system.  What constitutes a hard inquiry vs. a soft inquiry?  If prospective creditors will hit a CRA with a hard inquiry to determine your credibility then why does an insurance company hit you with a soft inquiry to determine your credibility?  What's the difference?

[GregB]

A normal inquiry, which is a request for new or increased credit is a hard inquiry. A soft is allowed for several purposes. An existing lender can do a soft for "Account Review". Insurance inquiry is not for new credit. Promotional are inquiry from companies that are looking for new customers. Another type of soft is when a creditor pulls their own report.

The reason that a hard inquiry can affect your credit score is that you are looking for new credit. Usually the effect on your score is very small.

[RobertEG]

The terms "hard" and "soft" inquiries are never mentioned in those or any other terms in the FCRA.  Any credit inquiry that entitles the requestor to your full credit report is, in the eyes of the FCRA, the same.  It has a permissible pull authority.  The only statutory provision that restricts a permissible putl without full access to your credit report are so-called promotional inquiries under FCRA 604(c) (1-3).  Those are defined as requests for your credit report in connection with any credit or insurance transaction not initiated by the consumer, and limit the inquiree to only your name and address.   Additionally, FCRA 604(c)(3) stipulates that inquires in connection with a credit or insurance transaction not initiated by the consumer may not be included in any credit report the CRA issues.  That is the extent of FCRA regulation.

The distinction between "hard" and "soft" inquiries is an invention of the credit reporting industry to record useful information in your credit file related to inquires that you have initiated.  Creditors want to see this additional information, and FICO has chosen not to score certain types of inquiries.  So a coding system was needed, and was developed to differentiate between different types of inquiries made by a consumer.  That reporting is not regulated by the FCRA.  So you are often at the mercy of the inquiree as to how they choose to code their inquiries.  If they select a code that FICO scores, it becomes what is called a "hard" inquiry.  They can, if they choose, even report inquires based on requests for new credit under a code that FICO does not score,thus making it a "soft" inquiry in your credit scoring.

Recordation of an inquiry as either hard or soft has no effect on the level of information the inquiree receives in the CR supplied to them.  So, for their purposes, they have no real incentive or disincentive to use a code that FICO does not score.

Disputes over the way inquiries are reported to a CRA became so common and time consuming that the new rules implementing the direct dispute process (16 CFR 660.4) specifically exempted all disputes relating to the reporting of credit inquiries from the direct dispute process.  So if you dispute, you must do it through a CRA.  And absent any FCRA regulatory proviions on such reporting, it is extremely difficult to argue inaccuracy in their reporting.  It is pretty much a process where you ask the creditor to change their reporting code.