Your credit score serves an integral role when it comes to managing your financial health—impacting your eligibility for loans, credit cards, and even some jobs. Denial of a new credit application can hurt your credit score by a number of factors, one of the most important of which is credit inquiries, something to which many people pay very little attention. In this article, we’ll walk through what types of credit inquiries exist, how credit inquiries affect your score, and what you can do to manage them correctly. Let’s dive in.

What Are Credit Inquiries?

When a lender, creditor, or organization requests a copy of your credit report, this is known as a credit inquiry. These questions enable them to assess your creditworthiness. There are two main categories of credit inquiries:

1. Hard Inquiries (Hard Pulls): These occur when a lender checks your credit report when you apply for credit (such as a loan, mortgage, or credit card). Hard inquiries can negatively impact your credit score in the short term because they suggest that you are applying for new credit.

2. Soft Inquiries (Soft Pulls): These happen when you pull your own credit report or a company accesses your credit for a background check. A soft pull does not impact your credit score.

The Impact of Hard Inquiries on Your Credit Score

Hard inquiries do affect your credit score, although they’re usually minor and short-lived. Here’s how:

• Minimal Score Drop: Hard inquiry can lower your credit score by a maximum of 5–10 points only. However, the precise effect depends on your credit history.
• How long: Hard inquiries remain on your credit report for 2 years, but they only impact your score for the first 12 months.
• Numerous Searchers in a Short Amount of Time: When you look for a mortgage loan when you buy a loan, multiple searchers are treated as the same query for the identical kind of credit (for example auto loans, mortgage) in a 2 into 45 a day time frame. This “rate shopping” window has little effect on your score.

Soft Credit Checks and Why They Don’t Matter

Soft inquiries do not affect your credit score. Examples include:

• offers of pre-approved credit cards
• Employer background checks
• How to Check Your Own Credit Report

Regularly checking your credit report through soft inquiries is a good habit for looking for errors or indications of identity theft.

Why do hard inquiries decrease your score?

Hard inquiries are a potential risk for credit scoring models (FICO and VantageScore, for example). They indicate that you’re applying for new credit, which might signal financial stress or increased dependence on borrowed money. Still, a single hard inquiry is not likely to matter much unless you have a short or dinged credit history.

Diminishing the Damage from Credit Inquiries

While you can’t completely avoid hard inquiries when applying for credit, you can try to manage their impact by:

1. Avoid Applying for Credit: Only apply for credit when you need it. Submitting multiple applications in rapid succession can have a dramatic impact on your score.
2. Plan Rate Shopping: When you are in the market for a mortgage, auto loan, or student loan, do it in a short window to reduce the number of hard inquiries.
3. There is an experience that we get used to continuously checking your credit report for a hard query that is not on you.
4. Forging Good Credit Habits: A decent credit score absorbs the shock of a hard inquiry better than a low one. Timely bill payment, lowering credit card balances, and a good mix of credit.

The Impact of Credit Inquiries on Your Approval Odds

Lenders don’t make decisions based exclusively on credit inquiries. This considers your entire credit profile, from your payment history to your credit utilization and length of credit history. Although hard inquiries can chip away at your score a bit, they’re only part of the picture. Over time, demonstrating responsible credit behavior can offset the impact of inquiries.

Myths About Credit Inquiries

 There are also a lot of myths about credit inquiries that can cause you unnecessary concern. Let’s debunk a few

• Checking Your Own Credit Hurts Your Score: Checking your report is a soft inquiry and does not affect your score.
• All inquiries count the same: hard inquiries do impact your score, whereas soft inquiries do not.
• Multiple Inquiries Are Always Bad: Inquiries have a very small impact when done on purpose (i.e., rate shopping).

How to Dispute Hard Inquiries That Aren’t Authorized

If you see an unauthorized hard inquiry on your report, act quickly.

• Call the creditor: Contact the company that pulled the inquiry and request an explanation.
• Dispute It: Contact the credit bureau that’s reporting it. Present other evidence showing that the inquiry was unauthorized.
• Monitor for Fraud: An unauthorized inquiry may indicate identity theft. Watch your credit report and place a fraud alert or credit freeze.

Conclusion: Make Sure To Handle Questions Well

Credit inquiries are an inevitable part of using credit, but knowing how it works can also help you minimize the impact. Be strategic in applying for credit and the purpose of the credit when you do, check your credit report regularly for accuracy, and build solid credit habits.

Frequently Asked Questions

1. How long do hard inquiries stay on my credit score? Hard inquiries are recorded on your credit report for two years but have little impact on your score after 12 months.
2. How do I remove hard inquiries from the credit report? You can still dispute a hard inquiry that you didn’t authorize. If they’re valid, they cannot be deleted.
3. Will I see soft inquiries on my credit report? Soft inquiries (which you can see and lenders cannot) do not affect your credit score.
4. How many hard inquiries are too many? There isn’t a hard number, but several inquiries in a short period of time can reduce your score and set off alarm bells for lenders.
5. I’ve been applying for mortgages—will this hurt my credit score? A mortgage application generates a hard inquiry, but with rate shopping, the effects are reduced when done within a certain time frame.