Business Finance

What Are Hard Inquiries and How Do They Affect Credit?

Jan 11, 2023 • 8 min read
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      A hard inquiry takes place when you apply for financing—like a loan or a credit card—and a lender reviews your credit report during the application process. Hard inquiries have the potential to damage your credit score. But that doesn’t mean you have to worry about a credit score drop every time you seek new credit. And you shouldn’t be afraid to apply for financing when you want or need it either.

      The subject of credit inquiries—especially hard credit inquiries—causes many misunderstandings. Here’s what you need to know about how hard inquiries really work and how to protect your credit score from damage.

      What are inquiries on your credit report?

      Consumer credit reporting agencies like Equifax, TransUnion, and Experian can only share your credit file details with those who have a permissible purpose to view that information. The Fair Credit Reporting Act (FCRA) outlines who is allowed to access your credit information and when. The same federal law also requires a credit reporting agency to let you know anytime it grants anyone else access to your sensitive personal credit information. 

      A credit bureau informs you that someone has reviewed your credit information by placing a record of the access on your credit report. That record is called a credit inquiry.

      What is a hard credit pull?

      A hard credit inquiry—also known as a hard credit pull—is a type of credit inquiry that has the potential to impact your credit score in a negative way. However, if a hard inquiry does affect your credit score, any damage is typically minimal. 

      Below are some common examples of hard credit inquiries. 

      • Loan applications 
      • Credit card applications 
      • Applications for lines of credit
      • Applications for credit limit increases

      “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’,” says 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.

      How do hard inquiries affect your credit score?

      Hard credit inquiries can often impact your credit score in a negative way. When they do, however, the impact is typically slight. 

      Consider FICO® scores as an example. The “new credit” category of your credit report is worth 10% of your FICO score. And the number of hard inquiries that have appeared on your credit report in the last 12 months is one of the factors that influences this credit score category.

      It’s also important to note that inquiries only factor into your FICO score for 12 months. FICO also ignores all inquiries that took place in the last 30 days when calculating your score. 

      Consumer credit scoring models like FICO and VantageScore also don’t penalize consumers for rate shopping for certain types of loans. With FICO scores, you can apply for multiple mortgage, auto, or student loans within a 45-day period and the scoring models will treat applications for the same type of loan as a single inquiry. (Note: Some older FICO scores only allow for a 14-day rate-shopping period.)

      How many points will a hard inquiry lower your credit score?

      A new hard inquiry on your credit report won’t cause you to lose a specific number of points from your credit score. And some hard inquiries might not result in a credit score point loss at all. According to FICO, one additional hard credit inquiry takes away less than five points from most people’s FICO score. Of course, a large number of hard credit inquiries in a short period of time could lead to potential credit problems. Excessive applications for new accounts is considered to be risky behavior by credit scoring models. And too many hard credit inquiries could signal to potential lenders that you might be in financial trouble. 

      Therefore, it’s wise to limit your credit applications. You should aim to apply for loans and credit cards for which you’re likely to qualify. It’s also smart to avoid seeking too much new credit at once.

      How long do hard inquiries last on credit reports?

      As mentioned, the Fair Credit Reporting Act (FCRA) requires consumer credit reporting agencies to disclose when they allow others to access your credit information. Depending on the type of credit inquiry, the FCRA may require it to remain on your credit report for anywhere from 12 to 24 months. As a matter of policy, some credit bureaus opt to leave all hard inquiries on consumer credit reports for up to two years.

      What is a soft inquiry?

      It’s important not to confuse hard inquiries with soft inquiries. A soft credit inquiry can also appear on your credit report as a record that someone has accessed your credit. Yet the key difference that sets the two types of inquiries apart from one another is the fact that soft inquiries will never damage your credit score. 

      Below are some common examples of soft credit inquiries.  

      • Checking your own credit report
      • Employment-related credit checks
      • Account maintenance credit checks (from current creditors)

      Additionally, only you can see the soft inquiries that appear in your credit file. If a lender pulls a copy of your credit report, it will see only hard inquiries. Soft inquiries are not visible to potential lenders.

      The bottom line.

      As a small business owner, having good personal credit can be an asset when you apply for business financing. So, it’s wise to pay attention to the factors that influence your personal credit scores, including hard credit inquiries. 

      You shouldn’t be afraid to apply for new credit when you want to borrow money for yourself or your business. Yet it does make sense to be strategic. Before you seek new credit, take the time to research financing options to discover the best solutions for your situation. 

      You may also want to review your credit to learn where you stand prior to applying for new credit. It’s also helpful to discover which lenders have qualification criteria you are likely to satisfy. (For example, if a lender requires excellent personal credit and your personal credit score is fair, the loan probably isn’t a good fit.) 

      Putting in extra effort to review your credit and research financing options up front might help you avoid additional (and unnecessary) hard credit inquiries. And you might also discover some great financing solutions for yourself or your small business at the same time.

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      About the author
      Michelle Lambright Black

      Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. Founder of—an online community that helps busy moms take control of their credit and finances—Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many more.

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