Hole expansion is one of the most important properties describing the formability of steel sheets, especially those used in automotive industry. In order to determine and emphasize the influence of hole edge conditions and hole surface quality on the results of standardized hole expansion tests, different hole preparation methods such as hole punching, hole drilling and wire cutting were applied to the industrially produced dual–phase and complex–phase steel grades DP800 and CP800. Results of hole expansion testing were discussed with respect to the impact of deformation introduced into the material during the hole preparation and to the material microstructure and mechanical properties. The damage characteristics of every method as well as the fracture surfaces were investigated in detail via light optical microscopy (LOM) as well as scanning electron microscopy (SEM). Qualitative and quantitative analyses of microstructure combined with microhardness measurements were used for the interpretation of the results and are correlated with the mechanical properties and the formability characteristics of the investigated steel grades.