>

Unraveling Hard Inquiries & Their Effects on Credit Scores

Advertiser Disclosure
Updated: May 11, 2023
author photo Written by Louis BakerUpdated: May 11, 2023
Advertiser Disclosure

What is A Hard Inquiry?

A hard inquiry, also known as a hard credit check or hard pull, is an action a lender or creditor takes when evaluating your credit profile before approving or denying your credit application. Lenders use the evaluation to assess how likely you are to pay back the borrowed money. Additionally, lenders will see your history of applying for new credit. Typically, your credit report will record hard inquiries within the last two years, and older inquiries will be deleted.

When a hard inquiry is made, it is recorded on your credit report and may temporarily lower your credit score by a few points. If there are multiple hard inquiries on your credit report in a short period, it may give lenders the impression that you are having financial problems or that you are a higher-risk borrower.

Examples of situations that may result in a hard inquiry include:

  1. Applying for a mortgage, personal loan, auto loan, or credit card.
  2. Setting up utilities, such as electricity or gas, as utility companies may perform a hard inquiry to determine if a deposit is necessary.
  3. Applying for a student loan, whether federal or private.
  4. Renting an apartment, as some landlords or property management companies may require a credit check.

You should keep in mind that hard inquiries can have a significant effect on your credit score, so it's important to minimize the number of hard inquiries made in a short period. In contrast, soft inquiries, such as checking your credit report or receiving preapproved credit offers, do not impact your credit score and can be conducted more frequently without consequences.

The Impact of Hard Inquiries on Your Credit Score

Hard inquiries can temporarily hurt your credit score, but their effects usually only last a few months. A single hard inquiry or two might lower your credit score by a few points, but it is unlikely to impact your overall credit profile significantly.Your credit score is mainly determined by your payment history and credit utilization.

However, the cumulative effect can substantially impact your credit score if you conduct multiple hard inquiries within a short period. This is because multiple hard inquiries may signal to lenders that you are experiencing financial difficulties or seeking new credit aggressively, which could indicate a higher risk of defaulting on your credit obligations.

Submitting multiple applications for the same type of loan will not have a significant impact on your credit score as credit bureaus recognize that you are comparing rates. For car loans or mortgages, multiple inquiries within a 14 to 45-day period are typically treated as one inquiry to minimize the impact on your credit score.This exception usually does not apply to credit cards, where all inquiries will likely affect your credit score.

How do Lenders evaluate Your Creditworthiness with Inquiries?

When you seek credit, such as a loan or a credit card, the lending organization will want to evaluate your creditworthiness to determine whether you are a reliable borrower. They assess your creditworthiness by reviewing your credit history and examining various factors, including:

Payment history:

Your on-time and late payments record reflects your reliability in repaying debts. For example, if a lender sees multiple missed bill payments on your credit report, they will doubt your ability to make future payments on time.

Credit utilization:

This refers to the ratio of your outstanding balances to your available credit limits. A lower credit utilization rate indicates responsible credit management and contributes positively to your creditworthiness.

Length of credit history:

A longer credit history provides more information about your financial behavior, allowing lenders to assess your creditworthiness better. A mix of older and newer accounts demonstrates a well-established credit history.

Types of credit:

The credit mix can help improve your credit score, as it is an effective proof of responsibility for managing your personal finances. You can choose from a variety of credit types, such as credit cards, auto loans, and mortgages.

Recent credit applications:

Numerous hard inquiries in a short time frame can signal financial difficulties or an increased risk of defaulting on credit obligations, which may negatively affect your creditworthiness.

This information helps them decide whether to approve or deny your credit application and, if approved, determine the terms and conditions of your credit agreement.

How Long Does a Hard Inquiry Last?

A hard inquiry remains on your credit report for two years. However, its direct impact on your credit score generally lasts a few months to one year. After a hard inquiry, you may initially notice a slight drop in your credit score. Over time this impact will gradually diminish.

Your credit score will improve as you continue demonstrating responsible credit behavior, such as making on-time payments and maintaining low credit utilization.

Two years from now, the history of tough questioning and its downside will be cleared. Therefore, in order to maintain good credit with a good credit resume, it is recommended that you manage your credit responsibly and use hard inquiries sparingly.

How to Dispute Hard Credit Inquiries

To dispute hard credit inquiries that occur without your permission, follow these steps:

1. Check your credit reports regularly:

Monitor your credit reports from the three major credit bureaus—Equifax, Experian, and TransUnion—frequently to ensure the accuracy of the information recorded. You are entitled to a free annual credit report from each bureau, and you can also use credit monitoring services for more frequent access.

2. Identify unauthorized inquiries:

You can check and dispute hard queries that you didn't authorize, but you can't do this for queries that you make yourself.

3. Gather supporting documentation:

Collect relevant information supporting your claims, such as account statements or correspondence with the lender or creditor.

4. Contact the credit bureaus:

If you find an unauthorized hard inquiry, file a dispute with the credit bureau that recorded the inquiry.

5. Contact the lender or creditor:

You should also contact the lender or creditor that initiated the unauthorized inquiry.

6. Keep track of your dispute:

Keep tabs on the progress of your dispute and make sure to get a response within 30 days, the allotted time for the credit bureau to investigate and respond.

How to Minimize the Effect of Hard Credit Inquiries?

To minimize the impact of hard credit inquiries on your credit score, follow these strategies:

Apply for Credit Only When Necessary:

Limit your credit applications to situations where you genuinely need the credit. Avoid applying for multiple loans or credit cards simultaneously, as this can signal financial stress and negatively affect your credit score.

Avoid Applying for Credit Too Frequently:

Allowing more time between credit applications gives your credit score a chance to recover before the next inquiry.

Rate Shopping:

When searching for the best interest rates on loans, such as mortgages or auto loans, submit all your applications within a short period (typically 14 to 45 days, depending on the credit scoring model).This is because credit scoring models can identify rate shopping. Often, multiple inquiries for the same type of loan are just as good as one inquiry, which is good for your credit history.

Prequalification or Preapproval:

Many lenders offer prequalification or preapproval processes that involve a soft credit inquiry, which does not affect your credit score. It is often used to predict whether you will be eligible for a loan or what interest rate you will get. However, hard inquiries are inevitable if you want to apply for a loan and get final approval.

Maintain a Healthy Credit Profile:

By practicing responsible credit behavior, such as making timely payments, keeping your credit utilization low, and maintaining a diverse mix of credit accounts, you can build a strong credit foundation. This will help your credit score recover more quickly from the impact of hard inquiries.

Monitor your credit reports: Regularly review your credit reports from the three major credit bureaus to ensure accuracy.

Understanding the Key Differences and Their Impact on Your Credit

Understanding the Key Differences and Their Impact on Your Credit

While both soft and hard credit inquiries involve reviewing your credit report, there are several key differences between them:

Impact on Credit Score:

Hard inquiries can cause a brief decrease in your credit score by indicating that you are actively seeking credit, while soft inquiries have no effect on your credit score as they are not linked to a new credit application.

Visibility to Creditors:

Hard inquiries are visible to creditors and other financial institutions when they review your credit report. Every time you make a hard inquiry, it will be recorded on your credit report, which will be seen by creditors and other financial institutions. This is an indicator of your recent credit-seeking activity. In contrast, soft queries are only visible to you.

Triggers:

Hard inquiries are triggered by actions that require a credit check, such as applying for a loan, credit card, or mortgage. Lenders conduct hard inquiries to assess your creditworthiness before approving or denying your application. But soft credit checks may be more frequent and common. A request for a credit report during a job search, a pre-approved credit offer, or receiving a background check can all be considered a soft inquiry.

FAQs

Does Examining My Personal Credit Scores Lead to a Hard Inquiry?

No, checking your own credit scores will not result in a hard inquiry. It is considered a soft inquiry, which does not impact your credit score.

Is a Hard Inquiry Indicative of Approval?

A hard inquiry does not guarantee approval. It only means that a creditor reviewed your credit report for your application, but they can still reject it.

What Tips Reduce the Number of Hard Inquiries on Your Credit Report?

To minimize the number of hard inquiries on your credit report, follow these guidelines:

  1. Avoid applying for multiple credit cards in a short period.
  2. Only apply for the credit cards you need.
  3. Check your credit score beforehand to gauge your chances of approval and avoid unnecessary hard inquiries.

The Bottom Line

Hard inquiries are necessary for the credit application process, but too many can negatively impact your credit score. By reading this article, you have clearly understood the difference between hard and soft queries. Also, responsible credit management and minimizing the number of hard inquiries is recommended. Hope this helps maintain a healthy credit score, thanks for reading!

author photo

Written by

Louis Baker

PERSONAL FINANCE AND CREDIT EXPERT

Louis Baker started his career in 2017 by contracting with Experian. He also became a part-time content creator in various fields such as insurance, personal finance & investment, etc.

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here’s how we make money.
On this page Jump to