Do you know what a hard inquiry is? Do you know how it works and how it affects your credit score? Find out now!
Ever applied for a loan or credit card and seen your credit score dip slightly afterward? You’re not alone. The culprit behind this situation is known as a hard inquiry. But what is it exactly? That’s what you are about to learn!
Let’s talk about what it is, how it works and how it impacts your credit score, while also exploring ways for minimizing their impact, so you can keep your credit score healthy. If you want to check out more financial tips on our website, you can click on this link!
What is a Hard Inquiry?
Also known as a “hard pull”, it occurs when a potential lender, such as a bank or credit card company, requests a detailed look at your credit report to assess your creditworthiness. And, as the name suggests, it causes your credit score to significantly, but temporarily, drop. This happens whenever you apply for a new line of credit, such as:
- Credit cards;
- Mortgages;
- Auto loans;
- Personal loans;
- Student loans.
How Does a Hard Inquiry Work?
When you submit a credit application, the lender doesn’t just take your word for it. They need a reliable way to evaluate your ability to repay the loan. This is where your credit report comes in, maintain detailed records of your borrowing history, including credit lines, payment behavior, and public records.
Upon receiving your application, the lender contacts credit bureaus to request your credit report. This request triggers a hard inquiry, which is recorded on your report. The credit bureau then provides the lender with your credit information to help them decide whether to approve or deny your application.
What Are Inquiries on Your Credit Report?
There are two main types of them: hard inquiries and soft inquiries. This is what each of them mean:
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Hard Inquiries: as explained earlier, these inquiries result from formal credit applications. They can stay on your credit report for up to two years, although their impact on your credit score diminishes over time (up to a year, and usually by less than five points);
-
Soft Inquiries: they occur when you check your own credit report or when a lender considers you for pre-approved offers without a full application. Soft inquiries do not affect your credit score.
How Do Hard Inquiries Impact Your Credit Score?
As mentioned previously, they can slightly lower your credit score, typically by a few points. This is because they signal to lenders that you’re seeking new credit, which can be seen as an increased risk. However, the impact is relatively minor compared to other factors that influence your credit score, such as your payment history, credit utilization ratio, and the length of your credit history.
Tips for Managing Hard Inquiries
- Don’t apply for cards or loans you don’t genuinely need. This will help keep the number of hard inquiries on your report to a minimum;
- Spacing out your credit applications can help minimize the impact on your score. Aim to shop around for the best rates within a reasonable timeframe (around 30 days) to be considered a single inquiry for scoring purposes;
- Before submitting a formal application, pre-qualify with multiple lenders. Pre-qualification typically involves a soft inquiry that won’t affect your score. This allows you to compare rates without triggering multiple hard inquiries;
- You can obtain a free copy of your credit report from a bureau, so monitor for any errors or suspicious inquiries, and take steps to dispute them if necessary.