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There are few credit topics that cause as much confusion among consumers as the subject of credit checks, or credit inquiries. You’ve probably heard some of the myths about how inquiries can harm your credit score. As a result, you may find yourself wondering how inquiries really do impact your credit profile.
Whether a credit check has the potential to damage your credit score comes down to one key piece of information: Is the credit inquiry hard or soft?
What is a credit inquiry?
An inquiry is a record on your credit report that shows who accessed your credit information and when they did so. The three credit reporting agencies — Equifax, TransUnion and Experian — are required by law to disclose (upon request) a record of whenever access to your credit report has been granted.
Certain types of credit checks have the potential to damage your credit score (though that doesn’t mean credit score damage is guaranteed). These credit checks are commonly referred to as hard inquiries. Typically, hard inquiries occur when you apply for new credit or services.
A soft inquiry is a credit check that does not damage your credit score in any way, since you are not applying for new credit. In fact, if a lender checks your credit, maybe to preapprove you for a credit card, soft inquiries will not show up on your credit report at all. Soft inquiries are only viewable on consumer disclosure reports, which are credit checks you initiate yourself.
What is the impact of a hard inquiry?
The reason lenders and scoring models care about the number of hard inquiries on your report is simple: Too many hard inquiries may indicate higher credit risk.
Hard inquiry examples
Examples of hard inquiries include:
- A lender checking your credit as part of a loan or credit card application
- A collection agency checking your credit for skip tracing purposes
- Your credit card issuer checking your credit after you request a credit limit increase
How much does a hard inquiry affect your credit score?
If you apply for a loan or two at about the same time, it will not impact your FICO score much since it could take it down by less than five points. However, if you apply for multiple loans around the same time, it could mean that you are a riskier prospect to lenders, and your FICO score could take a bigger hit.
The impact of hard inquiries shouldn’t stop you from shopping around when you are looking for a big consumer loan, such as a mortgage or car loan. In such cases, the FICO model considers inquiries made within a “shopping window” of 14 days to 45 days as one inquiry, so your score isn’t impacted much.
If you have just started building credit or only have a few accounts, you might feel more of an impact from credit inquiries than consumers with longer credit histories. Credit inquiries will impact your FICO score for a year, but they will stay on your credit report for two years.
However, before you get too worried about the damage a hard inquiry might cause your credit score, remember that inquiries are only worth a small percentage of your overall credit score. According to both FICO and VantageScore (which are two companies that provide credit scores used by lenders), inquiries generally won’t have a big influence on your credit scores.
Payment history is worth 35 percent of your FICO score. Your credit utilization, or the ratio of your outstanding credit card balances to your total credit limit, is largely responsible for another 30 percent. Inquiries, by comparison, only account for a portion of the new credit category of your credit reports. The whole category is worth 10 percent of your credit scores, and inquiries only make up part of that amount.
What is the impact of a soft inquiry?
One bad credit myth is the idea that checking your own credit might harm your scores. That’s just false — you can check your own credit report any time, and it will not affect your scores.
Not only can you check your credit reports without fear of credit damage, you should check them. Checking all three of your credit reports often is essential to make sure they are accurate and free of any suspicious activity.
Soft inquiry examples:
A few examples of soft inquiries include:
- Checking your own credit report
- A lender checking your credit as part of a preapproval screening
- An existing creditor checking your report for account maintenance purposes
- An employer pulling your credit for employee-screening purposes
- An insurance company checking your credit to determine eligibility or pricing for a new policy
What is the difference between a hard and a soft inquiry?
Below you can see the difference between a hard inquiry and a soft inquiry at a glance. The defining factor is that a soft inquiry occurs when someone is only seeking credit information about you (but not looking into making you a loan), while a hard inquiry happens when a lender is deciding whether to make you a loan.
|Soft Inquiries||Hard Inquiries|
|Occur when your credit is checked for informational purposes||Occur when your credit is checked for lending decisions|
|Do not affect your credit score||Affect your credit score|
|Do not require your permission||Require your permission|
|Are on your credit report for up to two years but not visible to potential lenders||Are on your credit report for two years and are visible|
What to do before a credit inquiry
If you are about to apply for a loan, you’re probably aware that a lender will be checking your credit. Before this happens, you can take some steps to present your credit in the best light possible to a prospective lender. For instance:
- Check your credit score to see where you stand and take any necessary action to improve it. For instance, if you catch any error, you should dispute it with the credit reporting agency.
- Don’t take on additional unnecessary credit that could raise your credit utilization ratio and lower your score.
- If it’s an option, use a lender’s preapproval process to see whether you are a good prospect for a loan. That way, you won’t need to initiate an unnecessary credit check if you are not a good prospect.
- Pay off any debt that’s coming due.
If someone made a legitimate credit inquiry, it will show up on your credit report, and you usually can’t do anything about it. However, you can dispute an inquiry if it is a result of identity theft and someone else is trying to take out a loan in your name.
When you check your own credit score, it does not lower it. In fact, you should look into your credit report occasionally to keep informed about your creditworthiness. And if you are about to apply for a loan, you should definitely check on your credit score.
That depends on whether it is a hard inquiry or a soft inquiry. When a lender is looking into your credit to decide whether to offer you a loan, it is a hard inquiry (which could lower your credit score). On the other hand, when someone, such as a prospective landlord or employer, is just looking at your credit for informational purposes, that is a soft inquiry (which will not lower your credit score).