If you’re trying to improve your credit score, you’re probably keeping an eye on a variety of factors. You make certain that you pay your bills on time because your payment history accounts for 35% of your credit score. You’re also keeping an eye on your credit utilization ratio, which accounts for 30% of your FICO score. But did you know that credit inquiries account for 10% of your FICO score and that certain types of credit inquiries can lower your score?
Someone may inquire about your credit history for a variety of reasons. Lenders and landlords conduct credit checks when you apply for a new credit card, take out a mortgage, or rent an apartment to determine whether you are a financial risk. These are known as hard credit inquiries, and they can lower your credit score by several points. Soft credit inquiries are different types of credit inquiries. These inquiries are more akin to background checks and have no bearing on your credit score.
Many people are curious about how much credit inquiries affect their credit score. Because the best credit cards are typically reserved for those with good or excellent credit, every credit score point counts. Is this to say you shouldn’t be concerned about credit inquiries lowering your score? And how many points does a hard inquiry — as well as other credit management activities — deduct from your credit score?
What exactly is a credit inquiry?
A credit inquiry is an investigation into your credit. Lenders, landlords, and potential employers can request access to your credit file, which includes your credit history, and credit inquiries provide them with a quick overview of whether you’ve been using credit responsibly.
Why are credit inquiries important?
When you apply for a credit card, look for a loan, or prepare to take on a new financial responsibility (such as renting an apartment), lenders and companies want to know if you’re a financial risk. These companies can assess your level of financial responsibility and the likelihood that you will default on your loan, miss credit card payments, or skip out on rent by conducting a credit history inquiry.
There are two types of credit inquiries: hard inquiries, which can lower your credit score, and soft inquiries, which have no effect on your credit score at all.
What is the distinction between a hard and soft inquiry?
What exactly is a difficult inquiry?
Hard credit inquiries, also known as hard pulls or hard credit checks, occur when you apply for a new line of credit or begin the process of making a large financial commitment. When you apply for a credit card, for example, the card issuer will pull your credit report and you will see a hard inquiry. Because you must give permission for a company to perform a hard pull on your credit, these inquiries should not surprise you.
The following are examples of common hard credit inquiries:
- Applications for credit cards
- Requests for loans (including mortgages, car loans and personal loans)
- Rental applications for apartments
- Applications for phones or utilities
What exactly is a soft inquiry?
Soft credit inquiries, also known as soft pulls or soft credit checks, occur when businesses pull your credit report for reasons other than a new financial obligation. Soft credit inquiries are frequently used as background checks and are occasionally used to determine whether you are pre-approved for a credit offer. Although some soft credit inquiries (such as employer credit checks) require your permission, other soft credit inquiries do not and may even occur without your knowledge.
Is it true that checking your credit score lowers it?
Checking your own credit score is a soft inquiry that does not affect your credit score. Many credit card companies provide free access to your credit score (some even offer credit monitoring). If a credit-tracking app or website does conduct a soft inquiry into your file as part of its credit monitoring process, it will have no effect on your credit score.
You also don’t have to be concerned about damaging your credit by checking your credit report. When you pull your credit report from Experian, TransUnion, or Equifax to evaluate your credit history or dispute credit report errors, it counts as a soft inquiry and has no effect on your credit score.
How many credit inquiries affect your credit score
Can having multiple credit inquiries hurt your credit score? It all depends on the type of credit you’re looking for.
When you shop for the best interest rate on a loan, such as a mortgage or an auto loan, the major credit bureaus and FICO recognize that you’re likely to have multiple credit inquiries on your account. As a result, multiple inquiries for the same type of credit are treated as a single inquiry if they occur within a certain time frame. Older FICO scoring models aggregate inquiries made within two weeks, whereas the most recent FICO score allows consumers 45 days to shop around for the best rates and terms.
If you apply for multiple credit cards in a short period of time, each application will result in a new hard credit inquiry being added to your credit report. This could make a big difference in your interest rates if you’re on the cusp of good and excellent credit — and it’s one of the reasons why you should wait at least 90 days between credit card applications.
What effect do hard inquiries have on your credit score?
A hard credit inquiry can lower your credit score by up to ten points, though in most cases, the impact will be minimal. According to FICO, “most people will lose less than five points for each additional credit inquiry.”
According to FICO, hard credit inquiries can stay on your credit report for up to two years. FICO, on the other hand, only considers credit inquiries made in the last 12 months when calculating your credit score. This means that a credit inquiry that is more than a year old will no longer affect your FICO credit score.
What effect do soft inquiries have on your credit score?
A soft inquiry has no effect on your credit score. When a lender conducts a soft inquiry on your credit file, the inquiry may appear on your credit report but has no effect on your credit score.
How to Dispute or Remove a Credit Check
Some credit inquiries on your credit report can be disputed or removed. You cannot remove a hard credit pull from your report if you initiated it by applying for new credit. If, on the other hand, a credit inquiry is the result of fraud (such as identity theft) or another error, you can file a dispute with the three credit bureaus — Equifax, Experian, and TransUnion — to request that the hard inquiry be removed.
- How to File a Complaint with Equifax
- How to File a Complaint with Experian
- How to File a Complaint with TransUnion
In conclusion
You can make informed decisions about when to apply for new credit once you understand how credit inquiries affect your credit score. Checking your credit score does not lower it, so feel free to do so as frequently as you like. Expect a hard inquiry into your credit if you decide to take on a major financial obligation such as a new credit card, mortgage, or apartment rental. In many cases, a hard credit inquiry will only lower your score by about five points, while soft credit inquiries will have no effect at all.
