Hard inquiries constitute an entire section on your credit report, but what exactly do they mean? If performed in excess, they can cause a huge drop in your credit score as well as 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 what causes a hard credit inquiry and how to time your credit applications to minimize the damage they can cause.
What is a Hard 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 a lender or creditor accesses your credit report, an inquiry is created. Potential creditors could see this as a red flag 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 ones listed, then 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.
Want to Remove Credit Inquiries from 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, including the name of the company and the date of the request. Some of the credit bureaus also list the company’s contact information underneath so you can easily call 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 in a smart way. You might think you’re being a responsible consumer by applying for several loans but in actuality, the credit checks could actually be doing damage to your credit history.
Eventually, you’ll more than 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 can be 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, since the inquiries category only accounts for your 10% of your overall credit score, a single inquiry shouldn’t have a dramatic effect.
In fact, it could be just a five-point drop or even less. Even though the listing remains on your report for two years, its 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 score 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 (though it’s also good to have an emergency savings fund set aside), but you can think about your personal and financial goals.
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 listed out potential uses for new credit, make a timeline of when you want to apply for each loan. The further apart you spread them, the better.
Creating a timeline also helps with grouping your 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 inquiry.
Both scoring models and lenders recognize that you must be rate shopping around for the best loan offer, so they won’t worry that you’re trying to scramble for several different loans.
If you want to avoid having multiple hard inquiries listed altogether, focus on lenders who provide a pre-approval offer, which only causes a soft credit inquiry on your credit report.
What is a Soft Inquiry?
A soft inquiry allows creditors to see a limited amount of information from your credit report in order to present you with an offer of credit. They don’t hurt your credit scores because you didn’t apply for credit or give permission for a creditor to pull this information.
This is how credit card issuers check your credit to send you personalized offers. But it’s also how lenders can give you a pre-approval offer without you having to fill out an entire application and rack up several hard inquiries.
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 one comes with a different code explaining why they are there. You might see one of your current creditors performing a perfunctory 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, your own requests for your credit report, and checks from creditors purchasing a portfolio of loans.
Any of these listings may remain on your credit report for 12 to 24 months; however, they’ll never have an impact on your credit score and shouldn’t raise any red flags to lenders when you go to 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. If you review your credit report and see inquiries for credit cards or loans that you didn’t apply for, then you can request to have the 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 inquiry. Oftentimes, they’ll remove the 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.
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, but 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.