Business Finance

The Impact of Hard Inquiries on Your Credit Report

Jun 21, 2021 • 6 min read
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      If you’re like most Americans, you are probably concerned with the health of your credit report because this document continues to be very important when you are seeking mortgages, apartment leases, credit cards, bank loans, and sometimes even a new job. At the same time, the specifics of how credit reports are created and how the algorithm that determines your credit score works can seem opaque and complicated.

      This is because the credit report system is fairly complicated, but with some research, you can glean a pretty complete understanding of credit reports and why your report looks like it does.

      You might be aware that credit inquiries can appear on your credit report and negatively impact your credit score. When you apply for loans or credit cards, for example, a record of this can show up. However, many factors are involved with how credit inquiries can impact your credit report, and there are several ways you can mitigate the effects.

      What Is a Credit Report?

      A credit report, or credit history, is a record of your creditworthiness. The 3 credit bureaus, Experian, Equifax, and TransUnion, create credit reports on every American who has applied for a loan or credit card.

      These credit reports display any debts you have incurred, like mortgages, credit cards, or student loans, along with how much outstanding debt remains and your history of repayment. As a person’s history is often seen as a decent predictor of future behavior, lenders look at your credit report when making a decision regarding your creditworthiness. Landlords and certain other parties might also be interested in your credit report.

      The information in your credit report is analyzed and turned into a credit score, which was first created by the Fair Isaac Corporation, or FICO. FICO scores range from 300 to 850, with a score above 740 considered “very good” or better.

      What Is a Hard Credit Pull?

      A “hard” credit inquiry, or pull, is when a lender or company requests to review your credit report. This inquiry itself becomes noted on your credit report and remains there for up to 2 years. Hard pulls often lower your credit score but not by a huge amount.

      “When you apply for a credit card or any other type of loan (a mortgage, auto loan), you give the issuer or lender permission to check your credit report to assess your ‘creditworthiness,’” notes CNBC contributor Elizabeth Gravier. “In essence, your potential lender is looking to see how likely you are to pay back the money you borrowed. The healthier credit history you have, the less risk you demonstrate, and the greater the likelihood you’ll qualify for that new credit card or loan.”

      While you don’t need to totally avoid hard inquiries, you should be aware that they appear in your credit history.

      Hard Pulls vs. Soft Pulls

      Along with hard pulls, “soft” credit inquiries also exist that do not appear on your credit report and have no effect on your credit score. Checking your credit report yourself or applying for a pre-approved credit card (like the ones you might receive in the mail) are considered soft pulls. Other cases, like a periodic review of your credit by a company already lending to you or the Internal Revenue Service verifying your identity, can also result in soft pulls.

      Importantly, checking your credit report yourself has no effect on your credit report or credit score.

      How Do Hard Inquiries Impact Your Credit Report?

      If you are constantly applying for credit (not just shopping around for a loan but consistently trying to take out loans month after month), lenders may think you are less creditworthy. In this way, the record of hard pulls reflects negatively on your credit history, but not as much as, say, missing your repayments or defaulting on a loan.

      FICO’s algorithm for calculating your credit score takes hard pulls into account and they can result in a slightly lower score.

      How Many Hard Inquiries Is Bad?

      Having a long, consistent history of hard inquiries is not great if you expect to apply for more loans in the future. However, if you are shopping around for loan options, the credit bureaus see this as one event. Depending on the credit bureau, a series of hard inquiries within a 14- to 45-day timeframe will generally be considered as one hard pull.

      “If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report,” FICO reports. “Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage, or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.”

      Hard inquiries will likely remain on your credit report for as long as 2 years. After 1 year, it no longer impacts your credit score.

      There is no benchmark for when you have too many hard inquiries, but think about patterns of behavior. If you apply for new credit cards every 2 months for a year, for example, lenders might question your creditworthiness.

      How Much Does a Hard Inquiry Lower Your Credit Score?

      Hard inquiries can lower your credit score 5 points or less.

      Your FICO score considers your payment history, credit utilization, debt amounts, length of credit history, credit variety, and amount of new credit. Your payment history and amount of total debt impacts your credit score much more.   

      “In general, the number of hard inquiries on your credit report isn’t a major factor in your credit score,” Experian notes, adding “hard inquiries are part of the ‘new credit’ category, but they don’t weigh heavily relative to the other factors.”

      Does Your Credit Score Go Up When a Hard Inquiry Drops Off?

      If a hard pull decreased your credit score, the inquiry will have no effect after a year. Assuming the rest of your credit report is solid, any negative effect a hard inquiry had on your score will likely go away in a few months.

      Best Practices to Mitigate Hard Inquiries

      Because the impact on your credit history is relatively small, you shouldn’t worry too much about hard inquiries if you are responsibly shopping around for a new lender.

      The best way to reduce the effect of hard inquiries on your credit score is to improve your overall credit history. Focus on making loan repayments on time and reducing your overall amount of debt.

      The first step toward improving your credit report is to see it yourself. There are now many free ways to check your credit score and credit report. Many banks now offer this service free to customers.

      Can You Remove Inquiries From Your Credit Report?

      Because the credit bureaus are directly aware of hard inquiries for your credit report, you can’t remove them from your credit report. Instead, you will have to wait the 2 years for the inquiry to drop off. Remember: after a year, a hard inquiry has no impact on your credit score.

      Can You Dispute Hard Inquiries?

      If you do not recognize a hard inquiry for your credit history, you might be a victim of identity theft, and you should contact the credit bureaus right away. The credit bureaus are required by law to inform you if a hard inquiry is made in your name. A hard pull that you don’t know about could mean someone is trying to take out loans using your identity.

      Otherwise, if a hard inquiry is legitimate, i.e., you know you approved the request, there is no way to dispute it.

      Hard Inquiries and Business Credit Scores

      Business credit scores don’t usually use credit inquiries in their calculation. Most business lenders will want to check your personal credit history, though, so too many hard inquiries on your credit report might limit your options. 

      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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