Hard inquiries to your credit can negatively affect your credit score and hurt your chances of getting loans or credit cards. These types of inquiries are mostly used in credit approvals or background checks.
In this article, we show you why hard inquiries can affect your score and how to protect yourself against it because no one wants to be blindsided when they are simply trying to get a loan – no matter your credit score.
What Is A Credit Inquiry?
Stated by a credit repair Austin expert, When a bank, creditor or company looks into your credit file to determine whether or not to extend credit to you, it’s called a credit inquiry. There are two types of inquiries: hard inquiries and soft inquiries. A hard inquiry is the one to worry about (and the one we are discussing today) because it lowers your credit score while soft inquiries don’t.
Hard Inquiries
When you apply for a loan or a credit card and the lender pulls your credit file, it’s called a hard inquiry. However, there are other hard inquiries you’ll find affecting your credit report to such as:
– Getting a cell phone contract
– Starting a utility such as water, gas or electric
– Applying to rent an apartment
Remember that, in most cases, you must permit a company to pull your credit file for a hard inquiry. Borrowers who have had several hard inquiries over a short period will see a more dramatic deduction to their credit score and could be considered a higher risk to lenders.
Soft Inquiries
As mentioned, soft inquiries don’t affect your credit score, and most soft inquiries happen without your knowledge. These kinds of inquiries include:
– A credit check
– Getting a pre-approved offer from a bank for a loan or credit card
– Increases in your credit limit
Also, when you access your credit file from companies like TransUnion or Experian, it shows up as a soft inquiry and won’t affect your score.
How Inquiries Affect Your Score
Most hard inquiries cause your credit score to drop a few points, and the degree to which a score is affected differs from person to person based on their credit history. For most people, a hard inquiry to their credit score causes a drop of about five points.
To put this into context, FICO scores range from 300 to 850, so if you have a score in the upper range, a hard inquiry has little effect on you, which is another reason why it is so important to have the best credit score you can.
However:
Remember that while one hard inquiry won’t affect your score much, a bunch of them close together will.
The reason for this is that statistically, people who have six or more hard inquiries in a short time are more likely to declare bankruptcy as they are needing to “borrow” money in a short period.
How To Protect Yourself
Hard credit inquiries can remain on your credit report for up to two years; however, it won’t affect your score any more after a year. The key to protecting yourself from falling credit scores from hard inquiries is to limit the number you allow.
Be cautious about applying for loans and credit cards, and wait at least six months before allowing another hard inquiry if you can.
The longer you maintain a good credit history with on-time payments, the less affect hard inquiries have on your score. So, whatever you do, continue making payments on time.
Lastly, if you’ve had a hard inquiry and seen a drop in your score, don’t fret, because you can build it back up in a few months by maintaining your payments.