How do Hard Inquiries Affect your Credit Report?
When you request a retail credit card or a jumbo mortgage loan, by applying for credit the lender usually access your credit report in the form of a hard inquiry. This type of request can stay on your credit report for up to two years, however in most cases it does not affect your credit scores for more than a year. Under normal circumstance, inquiries do not have any significant impact on scores after just a few months.
If you have many hard inquiries within a short time this situation may have a greater impact—except in specific circumstances. Keep in mind, the effect of each hard pull of your credit dissipates with time.
When you Check your own credit report or obtain credit monitoring services this is not viewed as a hard inquiry and ultimately has no effect on your credit score.
What Is the Difference Between a Hard and Soft Inquiry?
When you review your credit reports after applying for a loan, credit card or other form of credit, you'll normally see the hard inquiry as a result, it is possible to see other inquiries, called soft inquiries.
Soft inquiries may result from you checking your own credit report, a preapproved offer of credit, or a periodic account review by an organization you already do business with—other events can cause soft inquiries as well. Soft inquiries contrast from hard inquiries in that they don't normally reflect an application you've submitted for credit, and can be the result of something like the IRS verifying your identity for your tax refund, as an example. Soft inquiries never affect your credit scores.
How Much Does a Hard Inquiry Lower Your Credit Scores?
The amount of points a hard inquiry cost you off your credit score can vary slightly. FICO reports that a hard inquiry will reduce your credit score by an average of five to 10 points. If you have good credit, the decline can reduce your credit score less then if you have bad or fair credit, and for good credit consumers your scores should rebound in a few months. If you have bad or fair credit and a lot of hard inquiries for different types of credit within a short time, the effects will last longer; your overall credit score can be slightly reduced for approximately a year. After two years, hard inquiries drop off your credit report entirely.
Remember, the number of hard inquiries on your credit report isn't a major factor in your credit score. The FICO® Score☉ model takes into account your payment history, credit utilization, total debt, length of credit history, credit mix and new credit when calculating your credit score. Hard inquiries exist as part of the "new credit" category, but they don't weigh heavily relative to the other factors.
How Do Hard Inquiries Affect Shopping for Loans?
When attempting to find the best rates on a mortgage, auto loan or other large loan, many folks apply with several lenders, which will cause a separate hard inquiry from each one to appear on their credit report. However, their credit score may not plummet, as most credit scoring models weigh multiple inquiries for mortgage or auto loans as one inquiry if they are made within a certain time period (14 to 45 days, depending on the scoring model). Recently, consumers have found that the newest scoring models from FICO® and VantageScore® completely ignore multiple inquiries for mortgage and auto loans within a short period of time. This allows consumers to search for that dream car or home without worrying about your credit scores.
Remember this, several hard inquiries for other types of credit, such as credit cards or personal loans, are not treated the same way, and can cause lenders to suspect you're having financial difficulties. Applying for a credit card, an auto loan, a home equity loan and a personal loan within the duration of a month, for example, may be a signal you're in need of money or are taking on too much new debt too fast, and expose you as a risk to lenders that you won't be able to pay it all back.
Remember, when making a major purchase, don’t let the fear of hard inquiries stop you from shopping around for the lowest interest rates. Always monitor and take steps to ensure that hard inquiries don't negatively affect your credit.
How to Reduce the Impact of Hard Inquiries on Your Credit
When you plan to apply for a large loan such as a mortgage, position yourself to have less hard inquiries on your report to make you more desirable to lenders. To minimize the impact of hard inquiries on your credit score, do not apply for new credit in the months leading up to your big loan application.
You want to obtain a free copy of your credit report three to six months in advance and verify that your credit and inquiry information is accurate and up-to-date. If you fin hard inquiries not belonging to you and that you do not remember this could be a warning sign that someone has stolen your identity and is attempting to apply for credit in your name. Remember that the business name a company uses to request your credit report may not be the same as the name you know them by. Many companies have a "Doing Business As (DBA)" name or use an abbreviated name when accessing your credit report.
Improving your credit score may also reduce the impact of hard inquiries. The stronger your credit history, the less likely it is that an inquiry will have a significant impact. When in doubt about the status of your credit score, check you credit to find out about the status of your credit score. The higher your score, the less you have to worry about the negative effects of a single credit inquiry. Try to improve your credit score before applying for a loan, by taking these steps:
· Obtain the risk factors that come with your credit score and use them to identify the issues having the most impact on your score. When an inquiry is affecting a lending decision, there are usually other more important issues that are negatively affecting your credit. A stand alone inquiry in itself will never cause you to be declined or pay a higher rate.
· Maintain low credit card balances. When possible always, pay your balances in full every month. When that's not feasible, work on paying down debt and keeping your credit utilization ratio below 30%. Your credit utilization ratio measures how much of your available credit you're actually using. When you use too much, most lenders can be reluctant to extend more.
· Sign up for Experian Boost™† , a free service that adds your on-time utility, cellphone, and other bill payments to your credit report.
Can Inquiries on My Credit Report Be Disputed?
Legitimate inquiries can't be disputed or removed from your credit report during the two-year time period.
A hard inquiry from a company you don't recognize may not indicate a case of identity theft. When researching for a mortgage or auto loan, websites, apps, brokers or dealerships may send your information to multiple lenders, who will each check your credit. If you don't recognize the name of the company that performed the hard inquiry, you can normally find contact information for the company listed in the entry on your credit report or online, enabling you to call and verify the hard inquiry belongs to you.
When a company pulls your credit report in error, you should ask the company to contact the credit bureau(s) to have the inquiry removed. When someone is fraudulently applying for credit in your name, you should contact the credit bureau to dispute the inquiry and request to have it taken off your credit report.
Avoid Unnecessary Applications Prior to Applying for Home or Auto Loan
Remember a single hard inquiry on your credit report can cause a small, short-term decrease in your credit score, it may not have a major negative impact, especially if you have good credit. Having several hard inquiries for different types of credit in a short time, however, may result in a larger dip in scores as well as cause lenders to believe that you are facing financial difficulty or that you may be now or in the near future overextended.
If you're attempting to obtain a loan for a big purchase like a home or a car, first obtain a copy of your credit report for your review. Do not apply for new credit until after you apply for your mortgage or auto loan. At this point consider signing up for free credit monitoring—it will help you stay informed about your credit situation and may also help inform you of signs of fraud or identity theft, including unauthorized hard inquiries.