Simply put, a credit report inquiry is a check lenders or creditors run on your report when you apply for a loan or a credit card. All the inquiries are mentioned on your report but not all of them affect your credit score. Hard inquiries are the type of inquiries that impact your score, and unfortunately, they can cause the score to take a dip!
What Are Hard Inquiries?
Did you apply for credit? Then it is highly likely the involved agencies will run a hard inquiry or a hard pull on your credit report. This is because any creditor or lender would want to know how reliable you are as an applicant before they hand you the money. You would need to provide a consent while applying for the credit to let the company run the required check.
A creditor will inform you of the type of inquiry, hard pull or soft pull, that has to be made. This can help you decide whether you want to go ahead with the application or not. All such inquiries remain on your report for two years. However, the hard credit inquiry will only adversely affect your score for a year. This effect is mild because inquiries only account for as less as 10% of your overall score calculation.
Attention! “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.”
How Much Do Hard Inquiries Affect Your Credit Score?
Simultaneously opening new credit accounts can affect your score. This is because it shows that you needed multiple credit lines within a short period of time. Also the hard credit inquiries will affect the FICO score and remain on your report for up to 2 years. The dip that your score experiences can last for more than 12 months.
How much a hard credit inquiry affects your score also depends on how good your credit history is. If you space out the new application from your previous one well enough, the affect can be as less as just 5 points. The impact can be more evident if you only have a short credit history or small number of accounts. Nonetheless, large number if inquiries is always a red flag. According to a study, people who have 6 or more inquiries on their report run 8 times higher risk of going bankrupt as compared to those with no inquiry.
If you have applied for a new utility provider or a mortgage/auto loan, all the inquiries carried out within 14-45 days will be considered a single inquiry. This period can be different depending on which scoring model is being used. Although the inquiries will show up separately on your report, only one of them will affect your score.
Note! “This exception generally does not apply to other types of loans, such as credit cards. All inquiries will likely affect your credit score for those types of loans.”
A hard pull will let the creditor access your full report and the credit score. As much as would hate the idea of letting your credit score fall deliberately, hard credit inquiries can not be completely avoided. However, you can always use them strategically to avoid undue damage.
It is better to keep a regular check on your credit score. This is to see how the inquiries are affecting your report. Online services offered by different credit bureaus such as Experian let you monitor the FICO score for free. Constant check will also let you keep an eye on any inquiry that you have not made and have been reported by error. In such a case, you can quickly dispute the credit report and have error fixed.