If you’re eager to maintain a strong credit score, you probably already know what’s at stake. A high credit score can help you qualify for loans, secure lower interest rates, and access more favorable opportunities.
To earn a high credit score, you must optimize five factors: your payment history, account balances, length of credit history, credit mix, and credit inquiries. Today, we’re going to focus on that fifth credit scoring factor—recent credit inquiries—and explain why they matter.
Keep reading to learn what credit inquiries are, the difference between soft and hard inquiries, and how you can manage them properly to strengthen your credit score.
Table of Contents
What Is a Credit Inquiry?
A credit inquiry occurs when someone checks your credit report. This could be you, a lender evaluating your application for a loan or credit card, or even a landlord performing a background check.
Each time your credit report is accessed, it creates a record, known as a credit inquiry, that appears on your report. Some inquiries affect your credit score, while others are purely informational.
Soft Inquiries vs. Hard Inquiries: What’s the Difference?
The two types of credit inquiries are soft pulls and hard pulls. Understanding their differences is essential if you want to optimize your credit score.
What is a Soft Inquiry?
A soft credit inquiry, also called a soft pull, happens when someone checks your credit outside of a formal credit application. Some common examples include:
- You check your own credit report to scan for errors or to assess your creditworthiness.
- A lender pre-approves you for a credit card offer without a formal application.
- A potential employer runs a background check during the job application process.
- A landlord screens your credit without a formal rental application.
While soft inquiries often appear on your credit report, they don’t affect your credit score and lenders won’t see them. In turn, these credit inquiries are purely for your own monitoring purposes.
What is a Hard Inquiry?
A hard inquiry (or hard pull) occurs when you formally apply for a new credit card, loan, or line of credit and a lender pulls your report to make a lending decision. Unlike soft credit inquiries, hard inquiries can impact your credit score, but usually not by much.
A single hard inquiry typically only lowers your credit score by five points or less. That’s because it only makes up 10% of your overall FICO credit score. For reference, here are the weighted impact of the other four FICO credit scoring factors:
- Payment history – 35%
- Account balances – 30%
- Length of credit history – 15%
- Credit mix – 10%
Since the influence of recent credit inquiries is relatively minor, they may not affect your score much at all. Their impact ultimately depends on:
- Your overall credit profile – If you have a high score backed by an extensive credit history, a hard inquiry will likely have a smaller impact than if you’re brand new to credit or have a thinner credit file.
- How many inquiries you have – Incurring multiple hard inquiries within a short period can raise red flags to lenders. It signals that you may be taking on new debt to X financial hardships. Fortunately, there are strategies you can employ to mitigate the effects of multiple credit inquiries while you’re shopping around for the best rates.
Read More: Why Your Credit Mix Matters
How to Reduce the Impact of Multiple Hard Inquiries
If you’re shopping around for a loan, lenders and credit scoring models understand that you want to find the best deal. As a result, most credit scoring models will count multiple hard inquiries for the same type of credit account (mortgage, auto, or student loans) incurred within a specific timeframe as a single inquiry.
The grace period for these inquiries can vary depending on the scoring model used:
- Most FICO scores give you a 45-day window to rate shop.
- VantageScore only grants you a 14-day period.
How Long Do Credit Inquiries Stay on Your Credit Report?
While most types of negative marks (missed payments, collection accounts, certain types of bankruptcies) remain on your credit reports for up to seven years, hard inquiries only stay on them for up to two years. Additionally, their impact on your credit score fades even sooner.
In most cases, the impact on your score will only last 12 months, and it becomes quite minimal after the first few months. While an inquiry may slightly lower your score in the short term, it’s typically not a long-term concern for most borrowers.
Read More: How Much Does a Collection Impact Your Credit Score?
When Should You Worry About Hard Inquiries?
Most people don’t need to stress about the occasional hard inquiry. However, there are some situations where multiple inquiries can raise concerns, such as when you:
- Apply for several different types of credit in a short time – If you apply for a new credit card, a personal loan, and a car loan within a few weeks, it can prompt concern among lenders, making it more difficult for you to obtain additional credit or get approved for credit limit increases.
- Are just establishing or rebuilding your credit – If your credit score is already on the lower side, you may want to be more cautious about your credit inquiries until you bring it up to a better range. You can learn how to do just that in our article, “How to Build Credit with No Credit History.”
- Are applying for a mortgage in the near future – Since mortgage loans involve significant amounts of money, lenders are particularly thorough when assessing your creditworthiness. That’s why it’s crucial to apply with the highest credit score possible. Not only can a strong score boost your chances of approval, but it can also help you secure a lower interest rate, potentially saving you hundreds to thousands of dollars over the lifetime of your loan.
Read More: What’s a Good Credit Score for a Mortgage?
5 Tips for Managing Your Hard Credit Inquiries
Here are five simple ways to stay in control of your hard inquiries and protect your credit score:
#1 Check Your Credit Regularly
A 2021 survey found that 15% of consumers believe that checking their credit can hurt their scores. Fortunately, that’s just a myth—reviewing your own credit only triggers a soft inquiry, so it has no impact on your score.
With that misconception cleared up, it’s smart to monitor your credit reports and scores regularly. Keeping an eye on your credit can help you catch errors, detect signs of identity theft, and give you the opportunity to dispute inaccuracies with the credit bureaus.
Read More: 10 Common Credit Score Myths
#2 Dispute Unauthorized Credit Inquiries
If you spot a hard inquiry you didn’t authorize, contact the creditor right away. You can also file a dispute with the credit bureaus by phone, mail, or online. We outline the process for filing these disputes in our article, “Most Common Errors on Credit Reports & How to Fix Them.”
#3 Be Strategic About New Credit Applications
From business loans to cashback credit cards, certain types of credit accounts can help you achieve your financial goals faster if used properly. However, you should only apply for these accounts when you truly need them.
#4 Understand the Timing
If you’re planning to apply for a home loan soon, avoid incurring any unnecessary hard inquiries during the three to six months leading up to your application. This way, you can apply with the very best credit score possible.
#5 Rate Shop Strategically
Securing a competitive interest rate can save you a lot of money over time. As you rate shop for your next mortgage, auto loan, or credit card, simply submit your applications within a 14 to 45-day window. This way, your inquiries will be grouped as one for credit scoring purposes.
Credit Inquiries: Are They Minor or Make or Break?
Credit inquiries are just one small piece of your overall credit picture. While it’s important to understand how they work, you can take solace in the fact that the occasional hard inquiry won’t ruin your score.
Rather than fixating on this factor, lenders consider your overall credit history and financial stability. As a result, making your payments on time and keeping your credit balances low will have a much bigger impact on your credit score than a few hard inquiries here and there.
If you’re shopping for a mortgage, don’t let your hesitations around incurring hard inquiries stop you from finding the best deal. Just be strategic about your applications’ timing, and your score should stay in good shape.
Want to Learn More?
If you found this article helpful, make sure to check out the rest of our resources on the Certified Credit Blog! There, we explore a wide variety of topics for aspiring homebuyers and ambitious lenders.
If you’re a mortgage lender, you’re welcome to share our resources with your applicants to round out their credit education. While you’re at it, schedule a credit consultation with our team to learn how we can transform your business with our award-winning mortgage lending solutions.
Sources:
FICO. What’s in my FICO® Scores?
https://www.myfico.com/credit-education/whats-in-your-credit-score
Experian. Are Scores from FICO and VantageScore Different?
U.S. News. Survey: Almost One-Third Aren’t Sure What Hurts or Helps Your Credit Score.
