What Are Inquiries On Your Credit Report — A Year 2023 Guide
Inquiries are things that show up on your credit report when a legal person or group (like yourself) looks at your credit information. Most questions come from a request for credit, goods, or services, a review of your account by a company you already do business with, or a pre-approved offer of credit that has been sent to you.
There are two different kinds of credit checks: hard checks and soft checks. Account reviews and pre-approved credit offers are examples of “soft inquiries,” which don’t affect your credit score. Hard inquiries are for things like applying for credit cards, vehicles or certain loans. They don’t have a big effect on your score, but they can temporarily lower it. You should check your credit report several times a year to see both hard and soft requests. Here’s what you need to know about hard and soft searches and how they affect your credit report.
How Does It Work?
Lenders usually look at your credit record from one or more of the three national consumer credit bureaus to decide whether or not to give you credit, and if so, how much and at what interest rate. Your credit report gives an overview of your bills and how you’ve paid for them.
Creditors often use one or more credit scores, which are three-digit numbers based on a statistical study of the information in your credit report, as part of their evaluation process. A high score means it’s less likely you won’t be able to pay back your debts. When you apply for credit or a mortgage; your application generally says that the lender has your permission to check your credit. Hard requests show up on your credit report when lenders check your credit.
Some companies are also allowed by law to look at your credit report even if you didn’t ask them to. This could happen when your present lenders check your reports on a regular basis or when a potential lender sends you a preapproved offer.
Employers can also check your credit records, but they won’t get your credit score unless you give them written permission to do so. You can also check your own credit record and credit score, which is a good idea to do regularly since these checks don’t hurt your credit score. Soft searches are made on your credit report by checks like these that have nothing to do with credit applications.
What Is Hard Inquiry?
When you apply for a new loan, credit card, or line of credit, a lender checks your credit report. This is called a “hard inquiry.”
When you apply for new credit, you could end up with a new debt, which could possibly hurt your score until you can show that you’re handling the new debt well. Some credit scoring models, like those from FICO and VantageScore, lower your scores a little to account for this increased risk. For example, FICO says that hard searches usually lower scores by less than five points.
Hard inquiries stay on your credit record for up to two years, but as long as you pay your bills on time, your credit score usually goes back up within a few months as long as you keep paying your bills on time. And after 12 months, most credit scoring models don’t count a hard search at all when figuring out a score.
What Is Soft Inquiry?
When someone checks your credit report for a reason other than giving you money, this is called a “soft inquiry.” These things don’t make it more likely that you won’t be able to pay back your debts, so they don’t change your credit scores. Here are just a few:
- Credit card companies with which you already have accounts can look at your credit score to see if they should offer you new cards or other goods.
- Utility companies may use credit checks to decide if they need security deposits for leased tools like Wi-Fi routers or satellite dishes.
- Auto insurance companies may use credit checks to help them decide how much to charge for premiums, since safe driving and good credit scores go hand in hand.
If you get your own credit report or use a service like Experian’s to check your credit score, that will show up as a “soft inquiry” on your credit record. But, like other soft searches, checking your own credit score won’t hurt your credit.
Managing Hard Inquiries
Since hard searches can lower your credit score, you shouldn’t apply for a lot of new loans or credit cards all at once. If you apply for a lot of credit cards quickly or all at once, it can hurt your credit score without being necessary.
Because hard inquiries can temporarily lower your credit score, you should only ask for credit when you really need it. Even though some credit scoring models count multiple inquiries for the same reason in a short amount of time as one, multiple inquiries for different reasons in a short amount of time can hurt your credit score or make lenders worry that you are having trouble paying your bills.
It’s also a good idea to avoid applying for loans or credit for six to twelve months before you apply for a mortgage or car loan, so that your application shows your best credit score.
When you’re ready to get a loan, though, it’s fine to send your application to more than one lender so you can find the best interest rates and fees. You don’t have to worry that this will hurt your credit scores in the long run: The FICO Score and VantageScore models are made to let people compare loan rates, so they count multiple questions about similar loans as one if they happen quickly enough after each other. To be safe, don’t shop for rates for more than two weeks.
How To Remove Hard Inquiries
You should check your credit records from all three credit bureaus regularly, at least once a year. One thing to look out for is any question you don’t know how to answer. Even though they don’t happen very often, hard inquiries that you can’t explain can hurt your credit score. More seriously, they could be signs of criminal activity.
If you don’t recognize a hard inquiry, use the details on your credit report to get in touch with the creditor in question. There isn’t always a link between suspicious questions and illegal activity: A creditor you don’t know may be a lending partner of a store where you applied for a credit card or a car dealership where you asked for an auto loan.
If you know for sure that a hard request is related to fraud, like someone trying to get credit with your information, do these things:
- Tell the right law enforcement agents about it.
- Think about putting a scam alert or security freeze on your credit report to protect it.
- You can get the request taken off your credit report if you dispute it.
To Sum It Up..
Inquiries are one of the main reasons why there is a credit reporting system: Credit checks let lenders (and you) see how well you handle debt and how likely you are to be able to handle new loans and credit. When you ask for new credit, you can help lenders see you in the best light possible if you know how inquiries might affect your credit and carefully manage when and how often you make new inquiries.