You may have heard that a hard inquiry can hurt your credit score. But you may not be sure what that means — what is a hard inquiry anyway? Hard inquiries are created when you apply for
You may have heard that a hard inquiry can hurt your credit score. But you may not be sure what that means — what is a hard inquiry anyway? Hard inquiries are created when you apply for credit. They can potentially drop your credit scores, which can result in higher interest rates when you borrow.
On large loans, like those for a car or home, a drop of even a few points can mean a higher interest rate. And that may mean you will end up paying more over the life of the loan.
What Is a Credit Inquiry?
An inquiry is created when your credit report is accessed by a business. Let’s say you apply for a car loan, and the lender requests your credit report and score from Experian. The fact that your credit information was used by a particular company will be noted on your Experian report with the date, name of the company that requested it, and the type of inquiry that was made.
Before we get into the specifics of how inquiries work, it is important to put them into perspective. Unless you have been shopping heavily for credit (more on that in a moment), they shouldn’t have a significant impact on your credit scores.
New credit, which includes inquiries as well as new credit accounts, makes up just 10% of your FICO score. As a result, a single inquiry is likely to drop your score by less than five points, but only if it’s a hard inquiry and with the limits described below.
While inquiries remain on your credit reports for two years, only those within the past year count, at least with the majority of score models used these days. Older ones are ignored.
What Is a Hard Credit Inquiry?
Hard inquiries, otherwise known as hard pulls, can affect your credit scores greatly. They show you have applied somewhere to get credit, whether that’s a car loan, mortgage, student loan or credit card. Each of these credit checks counts as an inquiry and indicate a lender has reviewed your credit because you have applied to borrow from them.
A hard credit inquiry can typically drop your credit score by between five and ten points which can seriously affect your overall credit score. Be mindful of the credit you are applying for and how many times you are applying because each inquiry will be added, and you will then have multiple inquiries listed on your credit report.
However, if you have multiple hard credit inquiries from the same company such as an auto, mortgage, or student loan lender in a short amount of time, they will not affect your credit score as greatly.
What Is a Soft Credit Inquiry?
Soft credit inquiries, otherwise known as soft pulls, are not generated by shopping for credit and do not affect your overall credit scores. For example, a lender sending you a preapproved credit offer without you applying is a soft credit inquiry.
Checking your own credit score is also a soft credit inquiry. Similarly, if you already have a credit card or loan with a lender, they may review your account from time to time. The resulting account review inquiry will not show up when lenders request your reports or scores.
Also, any inquiries generated by an employer or an insurance company to check your credit history are ignored for the purposes of calculating your scores. (Not sure where your credit stands? You can check two of your scores for free on Credit.com. As we have explained, checking your scores will not harm them in any way.)
A soft credit inquiry will generate the same information that a hard credit inquiry would generate including your payment and credit history, debt management, any derogatory marks you may have, and your credit score.
Soft inquiries often typically occur without you even realizing they are happening. If you are unsure of the type of pull or inquiry a company is going to perform on your credit, then you need to make sure to ask them if it will be a hard credit inquiry or a soft credit inquiry. You can then check with the three credit bureaus to determine if the information you were given regarding the inquiries is accurate.
How Can I Keep My Credit Scores from Dropping?
There are several ways to minimize the likelihood that your scores will drop due to hard inquiries. Here are a couple of them:
Looking for a mortgage, car loan or student loan? It’s a good idea to limit your shopping to a two-week period. If you do, it’s likely those applications will only count as a single inquiry. That’s because most scoring models count all inquiries of one of those types as one, provided they take place within a 14- or 45-day period (depending on the model being used).
Monitor Your Credit
It is wise to check your credit report and credit scores before you shop for any kind of credit. You should then do your homework and try to apply for loans and credit for which you are more likely to qualify.
If you review your credit reports and see a hard credit inquiry or hard pull listed but don’t recognize the name of the company, then you should make sure it’s not a promotional credit inquiry. If it is, you were probably sent an offer for preapproved credit, and have nothing to worry about. (You can opt out of preapproved offers on the Federal Trade Commission website.)
If that’s not the case, the contact information for that company should be listed on your report so you can get in touch with them. If that information isn’t provided, be sure to ask the credit reporting agency for it. From there, you can work together to remove the error from your credit report.
How to Monitor My Credit
Monitoring your credit is a relatively easy task and should be done regularly to help counter any instances of fraud or identity theft. It will also go a long way in helping you to find any inaccuracies there may be on your credit reports so that you can report them and possibly have the damaging record removed and help improve your credit score.
Some may overlook monitoring the hard credit inquiries found on their credit report because they may not think they are such a big deal and they don’t carry much weight. However, this is wrong.
Looking at all of the inquiries made on your credit reports, including hard pulls and soft pulls, will show you who has been pulling your credit. They can also tip you off to any accounts that have been opened that you aren’t aware of or you didn’t authorize.
Can You Remove Inquiries from Your Credit Report?
As mentioned earlier, soft credit inquiries do not negatively affect your credit score, but hard credit inquiries can. If you would like to remove hard credit inquiries from your credit report, you will have to dispute the hard inquiry with the creditor or with the three credit bureaus.
If not disputed or removed, the hard credit inquiries will stay on your credit report for up to two years, and each time the hard pull is made, it can be reported by any or all three of credit bureaus—Equifax, Experian, and TransUnion depending on the credit pull. Therefore, every time it is reported and logged, it can have damaging effects on your credit score.
Hard credit inquiries also account for approximately ten percent of your total score. To begin the process of removing the hard inquiry, you can contact the creditor that performed the inquiry and ask that they remove it. Or you can dispute the inquiry and say that you never authorized it.
If you choose to dispute the authorization of the hard pull on your credit report, then the creditor will have to garnish proof of authorization for the hard credit inquiry made on your account. When you dispute a hard inquiry with the credit bureaus, you will also have to claim that there was no permissible purpose for the inquiry.
After disputing with the credit bureaus, a fraud alert may be placed on your credit account and then going forward, every time you apply for credit over the next ninety days, they will have to take the steps to verify your identity prior to providing any type of credit.
This article has been updated. It was originally published September 19, 2013.