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Hard and soft credit report inquiries and score: What to know

Credit, not the dollar, is the most exchanged form of currency within the United States. People live and swear by plastic money. It does not end there. The money market of America is entirely based on credit in multiple forms, from mortgages and HELOCs to credit cards and installment loans. If you have ever applied for a credit card or a home loan, you would definitely know what a credit report is and how it works.

There are multiple factors that affect your credit score such as errors on credit report, not using credit cards, the length of credit history, types of credit in use, credit inquiries, and so on.

So, today, let’s discuss credit inquiries and their impact on credit score.

What is a credit inquiry?

When a creditor, an employer, or a financial institution requests to check your credit report before giving you a loan, employment, or a credit card, is known as a credit inquiry.

Whenever a creditor pulls your credit report, it gets reported and stays in your reports for 2 years.

You’ll find it at the end of your credit report labeled as “Credit Inquiries” or “Regular Inquiries.”

Types of credit inquiries

There are two types of credit inquiries:

  • 1 Hard inquiries
  • 2 Soft inquiries

What is a hard inquiry?

Hard inquiries take place when creditors or lenders check your credit report before making any lending decision.

It happens when you apply for a credit card, mortgage, auto loan or other loans. Basically, they check whether or not you’re creditworthy. A lender/creditor pulls your credit report to assess risk factors implied by your creditworthiness. Collection agencies also generate a hard inquiry when they pull your report.

One single hard pull can reduce your score by as much as 1 - 5 points. This might sound a little discouraging, especially if you are in the market looking for the best rates or quotes. The good news is that the FICO Model encourages rate shopping by consolidating all hard pulls generated for a loan within a period of 14 - 45 days into a single hard inquiry.

What is a soft inquiry?

Soft inquiries trigger when an employer or a person reviews your credit report for a background check.

It also happens when you sit down in front of your laptop at the end of every few months and pour over your credit report to see if something is being reported incorrectly or to find out if any collection agencies are coming after you. As already mentioned, soft inquiries are also generated when employers, insurance companies, and banks extending pre-approved credit offers take a peek at your credit report.

For instance, soft pulls occur when employers check your credit report before giving you a job.

Soft inquiries don’t affect your credit score and may happen without your knowledge.

Soft inquiries have no negative impact whatsoever on your score. Therefore, contrary to what most people would have you believe, checking your own credit report does not reduce your score.

# Criteria Hard Inquiries Soft Inquiries
1 Applying for auto loan, student loan, business loan or personal loan    
2 Applying for credit card    
3 Applying for mortgage    
4 Applying for car or homeowners insurance    
5 Checking own credit report    
6 Pre-approval of credit card    
7 Landlord or rental management company requesting credit score and credit history during tenant screening process    
8 Landlord or rental management company confirming identity    
9 Identity verification by financial institutions like credit union, banks, or businesses    
10 Paying a rental car with a debit card    
11 Applying for auto loan, student loan, business loan or personal loan    
12 Requesting credit limit increase with a short credit history    

Why are credit report inquiries generated?

Credit report inquiries, both hard and soft, are generated and recorded for one simple reason. Although inquiries are not given the same importance as payment history or the credit utilization ratio, it forms an integral part of FICO’s risk assessment formula. FICO insiders say that a large number of hard inquiries is directly correlated to increased lending risks. People with six or more inquiries on their credit report within a period of 30 days are eight times more likely to file for bankruptcy as compared to a person with no inquiries on his report.

How long do inquiries stay on your credit report?

Unlike the credit information which appears on your credit report and has a shelf life of 7 to 7 years and 6 months, both hard and soft inquiries have a considerably shorter life span. Soft pulls are generally visible on your report for at least one year from the date it was generated.

Experian delists hard pulls after 2 years and one month from the date it was generated. TransUnion and Equifax choose to delete hard inquiries exactly 2 years from the date it was generated.

How credit inquiries affect credit scores

For each hard inquiry, your FICO score may drop up to 5 points, whereas, soft inquiries won’t lower your credit score.

Though a hard inquiry hits your credit score by few points, don’t make the mistake of having too many hard inquiries. It can worsen your financial situation if you have a borderline credit score.

Don’t apply for too much credit at the same time. If it happens, creditors will draw the conclusion that you’ve been denied credit previously and now you are desperate for it. In short, you appear as a higher risk to the borrower.

However, multiple hard inquiries within a short span of time (usually 14 days) is regarded as 1 hard enquiry.

Can you dispute hard inquiries?

You can only dispute those hard inquiries that are done without your consent.

Check your credit report and get full information about your credit inquiry. But, if it’s done with your approval, it’ll take 2 years to fall off from your credit report.

Is it important to remove credit inquiries?

Unlike delinquent debts and missed payments, credit inquiries don’t affect your credit score much.

But, there are other negative items that stay on your credit report for 7 to 10 years causing severe damage to your credit score.

So, remove those items from your credit report first that are causing serious damage to your credit score. Don’t worry if you have fewer inquiries, since they’ll automatically drop off from your credit report after 2 years.

But, if your credit report contains too many negative listings, removing credit inquiries may help improve your overall credit score.

If you face difficulty, you may take help from a professional credit repair company. It’ll show you the right path to repair your credit. However, you should know that there’s nothing which a credit repair company can do and you can’t.

Some pieces of advice

Keep track of your hard credit inquiries. Build your credit score before applying for credit. Avoid applying for too many credits at one time. Take help from an expert wherever needed.

I am on my way to establish credit so how many inquiries should I make? I have also heard that too many inquiries can lower down my score. Is it correct?

Inquiries negatively affect your score but the extent to which it affects actually depends on the overall profile of the credit report that's being scored. For instance, an inquiry is going to matter more on somebody who has a short credit history without a lot of accounts.

Consider a college student who has only a student loan included in his credit report. Now, if he gets a few inquiries, then that's going to affect his score more negatively than someone else who has got a long credit history.

The worst thing to do while establishing credit is getting a secured account and then putting across your credit applications to all of the big banks and the national department stores. By doing so, you start generating hard inquiries that in turn lower down your score. As lenders consider too many hard credit checks as an indication that you’re facing some kind of financial hardship and are desperately looking for credit to help you out

With proper help you can
  • Lower your monthly payments
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  • Waive late fees
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  • Avoid bankruptcy
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