Types of Inquiries
A financial institution may require your credit report information for a variety of reasons. To get it, the institution launches a credit inquiry and requests the necessary credit data from one of the three major credit bureaus – Experian, Equifax, and TransUnion.
While various organizations may launch the inquiry, it’s usually the financial institutions that are behind such requests. An inquiry pulls your credit report for the purposes of a credit check. It can even happen without your knowledge or permission. But does that affect your score?
How Credit Inquiries May Affect Your Score
Not every credit inquiry has the capacity to affect your score. In fact, most common inquiries do not leave any kind of trace on your credit score.
Depending on whether an inquiry will leave a mark on your score or not, we differentiate between the hard inquiry and the soft inquiry.
What’s the Difference Between a Hard and Soft Credit Inquiry?
What Are Soft Pulls?
A soft inquiry, or a soft credit pull, will not affect your credit score at all. When a person or a company performs a pre-approval or an employee-based check, it qualifies as a soft pull. It has zero impact on your credit score. No matter how frequently it happens, or who initiated it, a soft credit pull will never leave any trace on your credit score.
Only you and the credit bureau can see the soft inquiries. None of the other companies looking at your credit report will ever see them.
We already mentioned seeking pre-approval for a loan or a credit card as an example of a soft pull. The same goes for potential employers performing background checks on their prospective employees. But there are many other inquires that fall under the same category as well.
For example, an insurance company can pull your credit report for a quote. Applying to prequalify for credit offers is a soft pull too. Creditors can also obtain your report when they need that sort of information. Finally, you yourself may be the one who initiated an inquiry into your credit report. Thanks to provisions of the FACTA Law, you can obtain your credit report for free once per year at Annual Credit.com.
None of the examples above will have any effect on your credit score. Not even a small impact. Not even multiple inquiries. But a hard inquiry will.
How Does a Hard Credit Inquiry Affect Your Credit Score?
Unlike soft pulls, a hard credit pull can have a negative effect on your credit score. A hard inquiry is basically an application for credit, such as a mortgage, an auto loan, or a credit card. Multiple hard inquiries can be quite detrimental to your credit quality and lead to an increased interest rate.
One important exception to note here is that many hard pulls for the same type of loan within a certain time span only count as one hard pull. What that means is you can freely go rate shopping for a few loans to get the best interest rate. They will still just count as one. For example, under the FICO credit scoring model, auto loan applications within a 45-day period are treated as a single inquiry.
Remember that this applies only to the same types of loans. You should still be very careful with hard pulls, though, as they can be harmful to your score.
How Much Will Credit Inquiries Affect My Score?
Generally speaking, credit inquiries aren’t that big of a deal unless you really go overboard with them. In the FICO credit scoring model, what matters is the number of hard inquiries on your credit report in the last 12 months. The more inquiries that appear on your report, the more your credit score will suffer.
In most cases, one hard inquiry will take less than five points off your score. Considering that the average FICO score is anywhere from 600 – 750, that really isn’t much. Hard inquiries look much worse when you have a very short credit history. And since inquiries comprise only about 10% of the total FICO score (5% of VantageScore), you really shouldn’t fret over a single credit application.
Far more important scoring factors are paying your bills on time and keeping your overall debt burden low. Suffice it to say that you still shouldn’t be too reckless with hard inquiries. Keep them to a minimum.
Keep an Eye on Hard Inquiries
The bottom line is that a credit bureau will alert you every time someone checks your credit report. Such checks are listed under the “Inquiries” section of your report. That allows you to keep track of all the inquiries on your credit report.
Hard pulls will usually stay on the report for two years. However, some credit bureaus are more than willing to overlook them if one year has passed.
There’s another option, however. The best credit repairing companies such as White, Jacobs and Associates, can help you get rid of some of the hard inquiries. If you don’t want to wait for two years to pass and don’t feel like waiting for bureaus to show mercy on your score, schedule a meeting with a WJA credit analyst. Your next credit check will already look much better.