What is Hard Inquiry?
A hard inquiry, or a “hard pull,” occurs when you apply for a new line of credit, such as a credit card or loan. It means that a creditor has requested to look at your credit file to determine how much risk you pose as a borrower.
Hard inquiries show up on your credit report and can affect your credit score. So it’s important to understand when they happen, how they’ll impact you, and why it’s best to keep them to a minimum.
A hard inquiry could lower your scores by a few points, or it may have a negligible effect on your scores. In most cases, a single hard inquiry is unlikely to play a huge role in whether you’re approved for a new card or loan.
And the damage to your credit scores usually decreases or disappears even before the inquiry drops off your credit reports for good (hard credit checks generally stay on your credit reports for about two years).
That doesn’t sound so bad, but you may want to think twice before applying for a handful of credit cards at the same time or even within the span of a few months. Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer, as it suggests you may be short on cash or getting ready to rack up a lot of debt. So consider spreading out your credit card applications.
What Are Inquiries on Your Credit Report?
Simply put, a credit inquiry is a credit check. Inquiries happen when there is a legally permitted request to see your credit report from a company or person. You can check your credit report before applying for new credit to get an understanding of what they’ll see on your report. Your past and current financial behavior, such as payment history and balances on loans and credit cards, helps lenders decide whether to work with you.
Lenders could interpret several missed bill payments, for instance, as a sign that you’re likely to miss a payment again in the future. That could lead to you getting denied a loan or being charged higher interest rates. To get the information it needs, the lender must request your credit file from the credit bureaus, and that results in a hard inquiry. That inquiry, in turn, will appear on your credit report.
In contrast, a soft inquiry occurs when you check your own credit, for instance, or when a company wishes to prequalify you for a loan offer, but you haven’t yet submitted a full application. Soft inquiries do not impact your credit score.
How Hard Inquiries Affect Your Credit Score?
Hard inquiries have a negative impact on your credit score, in the short term at least. While a hard inquiry will stay on your credit report for two years, it will usually only impact your credit for a few months. For example, if you see a hard inquiry listed on your credit report but it was from over a year ago, it wouldn’t influence your credit score or deduct any points from it.
There are many factors that contribute to your credit score, however. The most important is payment history which accounts for 35% of your FICO® Score and credit utilization, or the amount of available credit you’re using, which makes up 30%. Applications for a new credit account for just 10% of your score, according to FICO, so a hard inquiry won’t necessarily make a major impact.
According to FICO, one credit inquiry on most people’s credit reports will take less than five points off of their FICO score. They say “most” people because not everyone has the same credit history. If you have a healthy credit history and credit score, to begin with, it’s likely that any hard inquiry on your credit report would do very little damage to your score or even none at all.
There are times when a hard inquiry is unavoidable, such as when you’re applying for a mortgage or an auto loan. In these cases, the credit bureaus recognize that you might submit applications to multiple lenders for one loan to compare rates.
As a result, you generally won’t be penalized for several inquiries appearing on your credit report for one loan type if they’re made within a 14- to 45-day period. On the other hand, applying for multiple credit cards and a personal loan in one week may be a red flag that you’re seeking credit you can’t afford. These will not be treated as one inquiry.
How Long Do Inquiries Stay On Your Credit?
Most credit reporting is voluntary. For example, credit card issuers aren’t legally required to share customer information with the credit bureaus. The credit bureaus aren’t required to include credit card accounts on credit reports, either. Account information is reported and included in credit reports because it helps the companies involved boost their bottom lines.
Inquiries are different. The credit bureaus are required by law to disclose when they give anyone access to your credit information. According to the Fair Credit Reporting Act (FCRA), most inquiries must stay on your credit report for at least 12 months. Employment inquiries have to remain on your credit report for 24 months.
Typically, the credit reporting agencies opt to keep inquiries on your credit reports for two years. Yet FICO only considers hard inquiries that occurred in the last year. Once a hard inquiry is older than a year, it has zero influence on your FICO Score.
VantageScore once again is more lenient where inquiries are concerned. If a hard inquiry lowers your VantageScore credit score, it will generally rebound in three to four months (provided no new negative information appears on your credit report).
How many hard inquiries is too many?
The effect of a hard inquiry on your credit scores ultimately depends on your overall credit health. In general, adding one or two hard inquiries to your credit reports could lower your scores by a few points, but it’s unlikely to have a significant impact.
Having a lot of hard inquiries within a short time frame though will likely have a greater impact on your scores. This is because lenders and in effect, credit-scoring models look at multiple credit applications in a short amount of time as a sign of risk. Though there can be exceptions when you’re shopping for specific types of loans, like car loans, student loans, or mortgages.
How to Reduce the Impact of Hard Inquiries on Your Credit?
Hard inquiries on their own generally aren’t enough to significantly reduce your score in a lasting way. This is especially true for those who have a positive credit history. In most cases, hard inquiries result in a temporary credit score drop that rebounds within a few months.
Improving your credit score is one of the best ways to cushion the blow of hard inquiries. To do this, focus your attention on the following areas:
- Always make on-time payments across all your accounts.
- Pay down your debt and keep your credit utilization ratio below 30%; the lower, the better.
- Pay off any past-due accounts, including collections or charge-offs.
- Periodically check your credit report and credit score and pay close attention to the risk factors included with your score.
- Apply for credit only when you need it.