A hard inquiry, also known as a hard pull, occurs when a lender checks your credit report to make a lending decision. This typically happens when you apply for a credit card, loan, or mortgage. Understanding the impact of hard inquiries on your credit score is crucial for managing your credit health.
What is a Hard Inquiry?
A hard inquiry is a record of a lender checking your credit report. It’s a normal part of applying for credit. When you authorize a lender to review your credit history, they perform a hard inquiry. This differs from a soft inquiry, which doesn’t affect your credit score and occurs when you check your own credit report or when companies pre-approve you for offers.
How Hard Inquiries Affect Your Credit Score
- Minor Impact: Generally, a single hard inquiry has a minimal impact on your credit score. For most people, it might cause a decrease of fewer than five points.
- Varying Influence: The extent to which a hard inquiry affects your credit score can vary. Several factors come into play, including your overall credit history, the number of recent inquiries, and the credit scoring model used.
- Temporary Effect: The impact of a hard inquiry is temporary. It typically fades within a few months, and the inquiry itself disappears from your credit report after two years.
Factors Influencing the Impact
Several factors determine how much a hard inquiry affects your credit score:
- Credit History: If you have a long and positive credit history, a single hard inquiry is less likely to have a significant impact.
- Number of Recent Inquiries: Multiple hard inquiries within a short period can signal to lenders that you are actively seeking credit, potentially making you appear riskier.
- Credit Scoring Model: Different credit scoring models, such as FICO and VantageScore, may weigh hard inquiries differently.
Rate Shopping and Multiple Inquiries
There’s an exception to the rule about multiple inquiries. If you are rate shopping for the same type of loan (such as a mortgage or auto loan) within a short period (typically 14 to 45 days, depending on the credit scoring model), multiple inquiries from different lenders may be treated as a single inquiry. This allows you to compare offers without significantly impacting your credit score.
Minimizing the Impact of Hard Inquiries
Here are some tips to minimize the impact of hard inquiries on your credit score:
- Limit Applications: Only apply for credit when you genuinely need it. Avoid applying for multiple credit cards or loans at the same time unless you are rate shopping.
- Rate Shopping Wisely: If you’re rate shopping, do it within a concentrated period (e.g., two weeks) to minimize the impact.
- Check Your Credit Report Regularly: Monitor your credit report to ensure that all inquiries are legitimate. You can obtain free copies of your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion) at AnnualCreditReport.com.
Hard Inquiries vs. Soft Inquiries
It’s important to distinguish between hard and soft inquiries:
- Hard Inquiry: Affects your credit score and occurs when you apply for credit.
- Soft Inquiry: Doesn’t affect your credit score and occurs when you check your own credit report, when lenders pre-approve you for offers, or when businesses conduct background checks.
Understanding the difference can help you manage your credit effectively.
Conclusion
While a hard inquiry can slightly lower your credit score, its impact is generally minimal and temporary. By managing your credit applications responsibly and understanding how inquiries work, you can minimize any potential negative effects and maintain a healthy credit profile. Regular monitoring of your credit reports is key to ensuring accuracy and identifying any unauthorized inquiries.
