Hard credit inquiries constitute an entire section on your credit report, but what exactly are they? If you have too many hard inquiries, they can cause a drop in your credit score. It can also cause potential lenders to think twice about your loan or credit card application.
The Fair Credit Reporting Act places restrictions on who can pull your credit report and why and when it may be pulled. Find out the different the difference between hard and soft credit inquiries and what causes a hard credit inquiry. We’ll also cover how to time your credit applications to minimize the damage they can cause.
What is a hard credit inquiry?
A hard credit inquiry indicates that you’re actively seeking credit. It could be in the form of an auto loan, a student loan, a personal loan, a mortgage, or even a credit card. That’s why credit scoring models give you a slight ding for each one. The more credit you try to get, the more likely you are to take on new debt.
Every time you apply for credit and a lender or creditor accesses your credit report, a hard credit inquiry is created. Potential creditors see multiple hard credit inquiries as a credit risk. It could mean that you’re either having financial difficulty or must divert more of your monthly income towards debt payments.
Plus, new accounts take time to show up on your credit report. If you have several recent hard credit inquiries listed, a lender reviewing your application might not know exactly how much credit you’re currently utilizing.
It’s important to strategically request hard inquiries to make sure you don’t do unnecessary harm to your credit report.
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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.
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, in actuality, 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 pulls listed on your credit report do carry a negative effect on your credit scores. But, the impact is usually minimal if you don’t overdo it.
Once a creditor runs a credit check, you’ll see a slight dip in your credit score. However, the credit inquiries category only accounts for 10% of your overall credit score. So, a single inquiry shouldn’t cause much damage.
In fact, it could be just a five-point drop or even less. Hard inquires remains on your credit report for up to two years. However, the impact on your credit only lasts for one year. Any inquiry that’s been listed for more than a year doesn’t have an effect on your credit score at all.
But the length of time between inquiries isn’t the only way a hard inquiry can impact your credit. Your credit history also reflects how many inquiries you’ve had.
After all, one credit inquiry subtracting five points from your overall credit score probably won’t be such a big deal. But if you’ve applied for several loans and credit cards in the last year, the damage can really start to add up.
How to Minimize Damage from a Hard Inquiry
Luckily, there are ways to strategically shop around for credit without hurting your credit scores too much. The first step is to find out what inquiries you already have listed on your credit report. You can do this by requesting free copies of your credit reports.
Check the dates in the inquiry section and see how many you’ve had in the last 12 months. If it’s only a few, then you should feel free and clear to shop around for new credit. If you have several listings, consider why they are there and how your current debt load feels.
Next, look ahead at the next 12 months and estimate what kind of credit you might need. Obviously, you can’t plan for major emergencies, but you can think about your personal and financial goals. It’s also wise to have an emergency savings fund set aside.
Do you want to consolidate debt with a lower interest personal loan? Do you think you might need a new car, or want to go back to school at some point? Once you’ve made a list of potential uses for new credit, make a timeline of when you want to apply for each loan. The further apart you spread hard inquiries, the better.
Create a Timeline
Creating a timeline also helps with grouping your hard inquiries together. When you have several of the same types of credit inquiries listed within a short period of time, they’ll only count as a single hard inquiry.
Both credit scoring models and lenders recognize that you must be rate shopping around for the best loan offer. They know that you’re not trying to scramble for several loans.
If you want to avoid having multiple hard inquiries listed altogether, focus on lenders who provide a pre-approval offer. This only causes a soft credit inquiry on your credit report.
What is a soft credit inquiry?
A soft inquiry allows creditors to see a limited amount of information from your credit reports to present you with an offer of credit. Soft credit inquiries don’t affect your credit scores because you didn’t apply for credit or give permission for a creditor to pull this information.
Commonly referred to as a soft credit check, this is how credit card issuers check your credit to send you personalized offers. Lenders and credit card companies also perform soft credit checks to pre-approve you for an offer without requiring you to fill out an entire application. This way you don’t rack up numerous hard credit inquiries.
Soft Credit Inquiries on Your Credit Report
You may notice a section of soft credit inquiries on your credit report. They’re listed directly underneath your hard inquiries and are referred to as inquiries not impacting your credit rating.
Each soft credit inquiry comes with a different code explaining why they are there. You might see a soft credit check from one of your current creditors to check on your current credit situation.
You could also see that just your name and address were given to a creditor so they could send you an offer. Other types of soft inquiries include employment checks, requests to view your own credit report, and checks from creditors purchasing a portfolio of loans.
Soft credit inquiries may remain on your credit report for 12 to 24 months. However, they’ll never have an impact on your credit score. They also won’t raise any red flags for lenders when you apply for a loan.
Can inquiries be removed from your credit report?
Hard inquiries may be removed from your credit report if you did not give your consent to have your information pulled. Review your credit report and look for hard inquiries for credit cards or loans that you didn’t apply for. Then, you request to have the hard inquiry removed so that it doesn’t negatively impact your credit score.
Start by sending a certified letter via mail to the creditor who requested the hard inquiry. Oftentimes, they’ll remove the hard inquiry as a courtesy since it’s easier than producing proof that you did indeed give your authorization.
If they don’t, they must provide you with a copy of a credit application with your signature or other proof that they were within their legal rights to request your credit information.
How to Dispute Hard Credit Inquiries
If you still disagree or if you don’t receive any response at all, it’s time to request an investigation. You must request a separate investigation from each of the three major credit bureaus.
You can use this sample letter as a template for your own letter. The credit bureau is required to respond within 30-45 days so you should see closure from the issue soon. Just be sure to track when you sent the letter so you know when to follow up if necessary.
Hard inquiries aren’t necessarily a bad thing. However, you do need to pay attention to them to ensure they’re not eating away at your credit score. With some strategic timing in your requests for credit, you shouldn’t have to worry too much about hard inquiries on your credit report.
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