Have you ever applied for a credit card or loan and noticed a small dip in your credit score? That’s likely the result of a hard inquiry. These inquiries are a normal part of the lending process, but they can affect your credit differently than a soft inquiry. Knowing the distinction can help you better manage your credit and minimize unnecessary damage to your score.
In this article, we’ll explain what hard and soft credit inquiries are, how they impact your credit score, and what steps you can take to stay in control of your credit profile. Let’s start by breaking down hard inquiries and why they matter.
What is a hard credit inquiry?
A hard credit inquiry indicates that you’re actively seeking credit, whether it’s for an auto loan, a student loan, a personal loan, a mortgage, or even a credit card. When a lender or creditor accesses your credit report, a record of the inquiry is created. These inquiries are visible to other lenders, and each one can slightly impact your credit score.
Lenders use hard inquiries to assess how risky it might be to lend you money, factoring in your creditworthiness and existing obligations. For example, if you’ve recently applied for multiple loans or credit cards, lenders may view this as a sign that you’re taking on too much debt or facing financial challenges.
Here are some common scenarios where a hard inquiry might occur:
- Applying for a credit card at a retail store: Many stores offer credit cards with discounts or rewards, but these applications often involve a hard inquiry.
- Taking out an auto loan: When financing a car purchase, lenders check your credit to determine your loan eligibility and interest rate.
- Securing a mortgage: Mortgage lenders will do a hard credit pull to evaluate your financial stability before approving a home loan.
- Opening a personal loan: Whether for debt consolidation or a big purchase, personal loan applications typically trigger a hard inquiry.
While hard inquiries are a necessary part of borrowing, having too many in a short period can signal potential financial strain. That’s why it’s important to be strategic about when and how often you apply for credit.
Hard Credit Inquiries on Your Credit Report
The final section at the bottom of your credit report lists every inquiry that has been made over the last two years. It includes the name of the credit card issuer or lender and the date of the request. Some credit bureaus also list the company’s contact information underneath. You can use this information to call the creditor or mail a letter with any questions or concerns.
It’s important to note that the Fair Credit Reporting Act (FCRA) places restrictions on who can pull your credit report, why they can do so, and when it may be accessed. This ensures that your credit report is only reviewed by those with a legitimate purpose, such as evaluating you for a loan, credit card, or other financial product.
When it comes time to apply for any type of credit, you need to compare offers wisely. You may think you’re being a responsible consumer by applying for several loans. However, the credit checks could be doing damage to your credit history.
Eventually, you’ll likely end up paying higher interest rates the next time you apply for credit because of it.
How Hard Inquiries Affect Your Credit Score
Hard inquiries listed on your credit report can have a small but noticeable impact on your credit score. To better illustrate their effects, here’s a clear breakdown of key factors:
Here’s a quick overview of how hard inquiries typically affect your credit score:
Examples
- Applying for a mortgage: Let’s say you’re buying a home. A single inquiry might lower your credit score by around 5 points. However, if you apply for multiple mortgages within a short time, credit scoring models often treat this as a single inquiry because you’re clearly shopping for the best rate.
- Opening multiple credit cards: If you apply for three credit cards in the same month, each inquiry could reduce your score by 5–10 points. Together, this can have a more noticeable effect.
Key Points About Scoring Impact
- Minimal Damage: A single hard inquiry usually causes only a slight dip in your score.
- Temporary Effects: The impact decreases after 12 months.
- Duration on Credit Report: Hard inquiries stay on your credit report for up to two years, though they only affect your credit score for the first year.
- Cumulative Effect: Multiple inquiries in a short time can make lenders hesitant, as it might indicate financial strain.
Planning when and how often you apply for credit can help reduce any negative effects on your score.
How to Minimize Damage from a Hard Inquiry
Hard inquiries don’t have to harm your credit significantly if you take the right steps. By being strategic and planning ahead, you can minimize the impact on your credit score. Here are actionable strategies to help you reduce the damage:
Check Your Current Credit Report
Start by requesting a free copy of your credit report to review your recent inquiries. Look for the number of hard inquiries in the past 12 months and identify any unauthorized or unnecessary ones. This helps you plan your next steps based on your current credit activity.
Plan Ahead for Credit Applications
To reduce the risk of multiple hard inquiries, consider your financial goals for the upcoming year. Do you anticipate needing a new car loan, mortgage, or personal loan? Mapping out a timeline helps you space out your applications to avoid unnecessary hits to your score.
- Combine Applications During Rate Shopping: When shopping for auto loans, mortgages, or student loans, apply to multiple lenders within a short time frame (typically 14–45 days, depending on the credit scoring model). This allows the inquiries to be treated as a single inquiry, minimizing the impact on your score.
- Focus on Pre-Qualification Offers: Many lenders and credit card issuers offer pre-qualification or pre-approval tools. These only result in a soft inquiry, allowing you to gauge your chances of approval without affecting your credit score.
Avoid Unnecessary Credit Applications
Only apply for credit when it’s necessary. For instance, avoid applying for multiple credit cards simultaneously unless it’s part of a deliberate strategy, like building credit through starter cards.
Build in Time Between Applications
Spacing out applications can further reduce the effect of hard inquiries on your credit score. For example, wait at least six months between significant credit applications whenever possible to allow your score to recover.
Monitor Your Progress
Keep an eye on your credit report and score to ensure that your inquiries are affecting your credit as expected. This also helps you catch unauthorized inquiries early and dispute them if needed.
By planning your credit applications and using tools like pre-qualification, you can minimize the impact of hard inquiries and keep your credit score in good shape.
What Is a Soft Credit Inquiry?
A soft credit inquiry, often called a soft pull, is a credit check that doesn’t impact your credit score. Unlike hard inquiries, soft inquiries are not tied to an active credit application and are typically used for informational purposes. These soft credit checks allow creditors or third parties to view limited details of your credit profile without affecting your score.
Soft Inquiries vs. Hard Inquiries: A Side-by-Side Comparison
Common Examples of Soft Inquiries
- Pre-Approval Offers: Credit card issuers and lenders often perform soft inquiries to determine whether you qualify for pre-approved offers. For example, you might receive a credit card offer in the mail based on a soft pull.
- Checking Your Own Credit: When you review your own credit report through services like AnnualCreditReport.com or a credit monitoring app, it results in a soft inquiry.
- Employment Background Checks: Some employers check your credit as part of the hiring process, which counts as a soft inquiry.
- Current Creditor Reviews: Lenders with whom you already have an account might perform periodic soft inquiries to review your credit for promotional offers or account management purposes.
Key Differences Between Soft and Hard Inquiries
Soft inquiries are not visible to other creditors and won’t affect your credit score. For instance, if a lender pre-qualifies you for a loan, it will show up as a soft inquiry without any impact on your credit. In contrast, a hard inquiry signals active credit-seeking behavior and may lower your score slightly.
Recognizing these differences can help you take advantage of credit opportunities while keeping your score intact. Soft inquiries are an excellent way to explore credit options without any negative effects.
Can inquiries be removed from your credit report?
If you spot a hard inquiry on your credit report that you didn’t authorize, you can take steps to have it removed. Here’s how to handle the process efficiently:
- Review Your Credit Report: Request a free copy of your credit report and check the inquiry section for any unauthorized hard pulls.
- Contact the Creditor: Send a certified letter to the creditor who requested the inquiry, disputing it and asking for its removal. Include any evidence to support your claim.
- Request Proof of Authorization: If the creditor claims the inquiry is valid, they must provide documentation showing you authorized it, such as a signed application.
- Dispute with Credit Bureaus: If the creditor doesn’t respond or resolve the issue, file a dispute with each of the three major credit bureaus (Equifax, Experian, and TransUnion). They are required to investigate and respond within 30–45 days.
If you’re unsure how to draft a dispute letter, we offer sample letters for disputing hard inquiries that you can customize to suit your situation. Following these steps can help ensure your credit report reflects accurate and up-to-date information.
Conclusion
Hard inquiries don’t have to be a source of stress. With a little planning and awareness, you can manage their impact on your credit score. Keep track of your credit report, space out applications, and take advantage of rate-shopping windows to minimize the effects of multiple inquiries.
If you find errors or unauthorized inquiries on your credit report, addressing them promptly can help protect your score. For those seeking additional support, consider working with professionals who can guide you through the process of disputing inaccuracies and improving your credit profile. With the right approach, maintaining a healthy credit score is entirely within reach.