Next time you shop for a loan or apply for a new credit card, it’s worth keeping in mind that what might seem like a temporary transaction could have a long-term impact on your credit rating.
Each credit application results in what’s called a hard inquiry, which is logged on your credit report and remains there for two years. Too many hard inquiries within a short period of time could hurt your credit scores—but there are exceptions.
Here’s a look at how hard inquiries affect your credit score, so you can shop for loans and other credit products wisely.
What are hard inquiries?
A hard credit inquiry (also known as a hard check or hard pull) occurs when a customer applies for credit of any type, including student loans, mortgages, and new credit cards. The lender, of course, wants to check on the applicant’s credit history to ensure that he or she is a safe bet, and these inquiries are recorded by the major credit reporting agencies.
Lender checks are different than soft inquiries, which do not impact credit scores. Soft inquiries happen when a person checks their own credit score, or when a business looks into a customer’s credit history in order to offer them a promotional rate.
How hard inquiries can affect your credit scores
Every hard inquiry that’s made on your credit history is logged, and too many, too close together, can impact your credit score. Repeated applications for new loans or multiple credit card applications may indicate to lenders that a person could be a risky borrower.
Depending on the length and quality of a customer’s borrowing history, each separate inquiry potentially could cost as much as five points off a total credit score, according to FICO.
There are exceptions, though: Borrowers searching for a good interest rate often apply to multiple lenders at once. For this reason, FICO says it counts such “rate shopping” checks as a single inquiry as long as they’re done within a 45-day window. The same goes for renters looking for a new apartment who have potential landlords running multiple checks. The agency says it won’t ding credit scores as long as the inquiries are grouped within a 45-day period.
How long do hard inquiries stay on a credit report?
The three credit bureaus record every credit check (both hard inquiries and soft) and keep them on your report for two years. Hard inquiries only impact your credit scores for one year, however—with those from the past six months counting the most against your credit score.
As long as your credit history is substantially long-established, a handful of hard inquiries should only have a small effect on your scores. But it’s important to remember that too many checks over a period of months could impact your credit rating. Don’t apply for multiple credit cards at the same time. And if shopping for a loan, remember to conduct your search within 45 days window to have them considered a single inquiry.