Credit scores are difficult to understand. If you don't know how they work, you will never be able to improve your score. Remember, there can be errors in your credit report that are pulling down your score. Sometimes, even not using the credit cards can affect negatively. Most importantly, if some retailers and financial institutions access your credit report, your credit score can be affected.
There are many factors that can affect your credit score. Thus, you should be aware of the factors related to your credit score.
Today's topic is about credit inquiries and their impact on your credit score.
What does a credit inquiry mean?
A credit inquiry is made when a creditor, an employer, or a financial institution pulls up your credit report to check for a purpose like giving you a loan, employment, or a credit card. This is reported on your credit report with the date and the name of the company, which requested it and the type of the inquiry.
Credit inquiry is of two types:
- Hard inquiry
- Soft inquiry
Hard inquiry - When does it happen?
A hard inquiry implies that you have applied to take out a loan, a credit, a mortgage, or a student loan. These types of credit checks count as a hard inquiry because a lender or a creditor has checked your credit report as you have applied to take out a loan.
You should give permission to the lender or the credit card issuer to look at your credit report to grant your loan request or a new line of credit. This process is called hard inquiry or hard pull.
A new single hard inquiry can drop your score by 5 points or less.
Soft inquiry - When does it take place?
A soft inquiry occurs when a company or a person pulls your credit report to check your background. Checking your own credit report is also counted as a soft inquiry.
For example, if an employer accesses your credit report to check how creditworthy you are or you check your own credit report from websites (Credit Karma, Credit Sesame or MyFICO), it is considered to be a soft inquiry.
In addition to this, a creditor or a lender can also review your account time to time, which will not affect your credit score; it can occur without your permission.
Do the inquiries (hard and soft inquiries) affect your credit score?
As already mentioned, soft inquiries will not affect your credit score negatively.
Hard inquiries can lower your score by some points. However, it will not affect your score majorly.
How long do the hard and soft inquiries stay on your reports?
You’ll find the inquiries at the end of your credit report labeled as “Credit Inquiries” or “Regular Inquiries.”
What does that mean?
Whenever a creditor pulls your credit report, it gets reported and stays in your reports for 2 years.
Both hard and soft inquiries stay on credit report for 2 years and it will be visible to anyone who will pull your report.
Remember, hard inquiries only have a negative effect on your credit score for the first 12 months.
Can you dispute hard inquiries?
As mentioned earlier, a hard inquiry takes place, then your credit score can drop by 5 points. If a wrong inquiry takes place, you have to dispute the error.
However, you can only dispute the error if it is done without your permission.
Therefore, it is advisable to review the credit report to get full information.
How can you manage your credit inquiries?
You can avoid hard inquiries on your credit reports. How?
- You should apply for a credit when you truly need it.
- Review your credit report to check that any hard inquiry on your report is not a fraud.
- If you want to apply for a loan (mortgage or auto loan), then make sure you do it in a short time frame. Hard inquiries made within a time frame of 30-90 days are considered to be 1 hard inquiry.
Lastly, you have to understand that delinquent debts and missed payments affect your credit score more negatively than credit inquiries.
These negative items will stay on your credit report for 7 to 10 years that can create severe damage to your credit score.
So, it is important to take care of those negative listings that are causing negative effects to your credit score.
Don’t worry if you get some inquiries, because, they will automatically drop off from your credit report after 24 months.