What Is a Hard Inquiry and How Does It Affect Your Credit Score?
When are credit inquiries less important?
A credit report inquiry occurs when anyone requests a look at your credit report. All inquiries made within the past two years are cited in a dedicated section of your report, making it easy for others to get a clear sense of your credit standing. But not all inquiries are created equal. Some inquiries are far less important. Hard inquiries have an impact on your credit score, while soft ones do not.
Some inquiries are made when a business checks your credit report to prescreen you for certain products or services without any action or consent on your part.
Those credit card offers you routinely get in the mail telling you that you're "prequalified" are a prime example. This just means that you've been selected to apply for a card. It doesn't mean you've been approved for a card...because no one has actually looked at your entire credit report yet. They've simply looked at a profile of you. These are soft inquiries, and they're nothing to fear.
The same applies when you ask for a copy of your own credit report, or if you give a potential employer permission to look at your report. These are both soft inquiries as well, as are any requests from your auto insurance company for purposes of establishing your policy premiums.
Soft inquiries don't appear on the version of your credit report that creditors and lenders can see—only you can view them when you pull your own report.
Hard Inquiries Are Different
Inquiries made as the result of an application you've made for credit are known as hard inquiries. They're sometimes referred to as "hard pulls" because the creditor has pulled your credit report. You give your implied consent for these inquiries when you apply for a credit card or loan—the lender will obviously want to know about your credit history before handing you money. It will want to check your credit.
A creditor or lender should tell you which type of inquiry is going to be made—particularly if you ask—so you can decide whether you want to proceed with your application or request.
How Inquiries Impact Your Credit Score
All inquiries—hard inquiries and soft inquiries—remain on your credit report for a two-year period, but only hard inquiries will impact your credit score and only for one year. Soft inquiries have no effect on your credit score at all.
Inquiries can account for as much as 10% of your credit score, depending on what scoring model is being used. Your credit score can drop by a few points and lead to you being denied for credit if too many hard inquiries appear. Lenders tend to think you're applying for too much credit when this happens, maybe because you aren't solvent and or you're desperate to get a loan.
But FICO—the credit-scoring service and developer of the most commonly used credit score—indicates that a number of other factors come into play in addition to the inquiry or inquiries. These other factors include the number of accounts you’ve recently opened, how much time passed since you opened your last account, and the amount of time since your last inquiry. As a result, many people won’t be affected by just one or two additional hard inquiries, particularly if they have fairly good scores to begin with.
What If You're Shopping for the Best Loan?
You might have dozens of inquiries appear on your credit report as various lenders try to qualify you for a mortgage or auto loan, particularly if you're shopping around for the best deal. Fortunately, all inquiries for similar credit—such as all for auto financing—are generally treated as a single inquiry when they're made within a certain timeframe, anywhere from 14 days to 45 days. It depends on which credit scoring model is being used to calculate your credit score.
A Cautionary Note About Credit Applications
It’s safe to assume that a new inquiry will have less of an effect on your credit score if it's been a while since your last inquiry, and if it's only an isolated occurrence now and again. The fewer recent inquiries you have and the older they are, the less impact. It’s important to keep your applications for credit to a minimum to protect your credit score.