A hard inquiry, also known as a “hard pull,” is a credit check that occurs when you apply for a new line of credit, such as a credit card, loan, or mortgage. Understanding hard inquiries is crucial because they can temporarily affect your credit score and remain on your credit report for up to two years. Knowing how they work can help you manage your credit responsibly and avoid unnecessary score dips.
What is a Hard Inquiry?
Definition of a Hard Inquiry
A hard inquiry happens when a lender checks your credit report to evaluate your creditworthiness for a specific credit application. It indicates that you’re seeking new credit. Lenders use this information to assess the risk associated with lending you money.
Differentiating Hard vs. Soft Inquiries
It’s important to distinguish between hard and soft inquiries. A soft inquiry, also known as a “soft pull,” doesn’t impact your credit score. Soft inquiries occur when:
- You check your own credit report.
- A lender checks your credit as part of a pre-approved offer.
- Employers conduct background checks (with your permission).
- Insurance companies check your credit score for policy quotes (depending on the state).
The key difference is that soft inquiries are not tied to a specific credit application and are therefore considered less impactful to your creditworthiness.
How Hard Inquiries Appear on Your Credit Report
When a lender performs a hard inquiry, it gets recorded on your credit report with all three major credit bureaus: Equifax, Experian, and TransUnion. The report will include:
- The lender’s name.
- The date of the inquiry.
- The type of credit applied for (e.g., mortgage, auto loan, credit card).
You can access your credit reports from AnnualCreditReport.com to view these inquiries.
Impact of Hard Inquiries on Your Credit Score
How Many Points Can a Hard Inquiry Lower Your Score?
The impact of a hard inquiry on your credit score varies depending on factors like your overall credit profile and the credit scoring model used (e.g., FICO, VantageScore). Generally, a single hard inquiry might lower your score by less than five points. However, the cumulative effect of multiple hard inquiries in a short period can be more significant.
Factors Influencing the Impact
Several factors determine how much a hard inquiry affects your score:
- Overall Credit History: If you have a long and positive credit history, a single hard inquiry will likely have a minimal impact.
- Number of Existing Accounts: The more open and well-managed accounts you have, the less each individual inquiry matters.
- Recent Credit Applications: Applying for multiple credit lines in a short time frame (e.g., within a few weeks) can signal higher risk to lenders and negatively affect your score more.
- Types of Accounts: The type of account can play a small role; for instance, applying for a secured credit card might be seen as slightly less risky than applying for multiple unsecured cards at once.
Minimizing Negative Effects
Here are a few tips to minimize the potential negative impact of hard inquiries:
- Space out credit applications: Avoid applying for multiple credit cards or loans simultaneously. Give your credit score time to recover between applications.
- Rate shopping strategically: When shopping for a mortgage or auto loan, multiple inquiries within a short period (typically 14-45 days, depending on the scoring model) are often treated as a single inquiry. This allows you to compare rates without significantly impacting your score.
- Monitor your credit report regularly: Check your credit reports from all three bureaus to ensure accuracy and identify any unauthorized inquiries.
How Long Do Hard Inquiries Stay on Your Credit Report?
Inquiry Removal Timeframe
Hard inquiries typically remain on your credit report for up to two years. However, their impact on your credit score diminishes over time. Most scoring models only consider inquiries within the last 12 months.
Removing Inaccurate Hard Inquiries
If you find an inaccurate or unauthorized hard inquiry on your credit report, you have the right to dispute it. Follow these steps:
Examples of Legitimate vs. Illegitimate Inquiries
Legitimate Inquiry: Applying for a credit card with Chase and seeing a hard inquiry from Chase on your Experian credit report is legitimate.
Illegitimate Inquiry: Seeing a hard inquiry from a lender you’ve never interacted with, especially after receiving a suspicious email or phone call, is potentially illegitimate. This could be a sign of identity theft.
When are Hard Inquiries Necessary?
Applying for Credit Cards
A hard inquiry is a standard part of the credit card application process. Lenders need to assess your creditworthiness to determine your interest rate, credit limit, and other terms.
Obtaining Loans (Mortgages, Auto Loans, Personal Loans)
When you apply for a loan, whether it’s a mortgage, auto loan, or personal loan, the lender will perform a hard inquiry to evaluate your ability to repay the loan. As previously mentioned, rate shopping for these types of loans within a specific timeframe is usually treated as one inquiry for scoring purposes.
Renting an Apartment
Some landlords may conduct a credit check as part of the rental application process. This often involves a hard inquiry, although it’s becoming more common for landlords to use soft inquiries for initial screening.
Co-signing for a Loan
If you co-sign for a loan, the lender will likely perform a hard inquiry on your credit report, as you’re taking on the responsibility of repaying the loan if the primary borrower defaults.
Managing Hard Inquiries Strategically
Rate Shopping Wisely
When comparing offers for loans or mortgages, shop around within a short timeframe (e.g., 14-45 days) to minimize the impact of multiple inquiries. This allows you to find the best rates without significantly affecting your credit score.
Pre-qualification vs. Pre-approval
Pre-qualification typically involves a soft inquiry and gives you an estimate of the terms you might qualify for. Pre-approval often involves a hard inquiry and provides a more definitive offer based on a thorough credit check. Understand the difference before proceeding.
Monitoring Your Credit Report Regularly
Regularly checking your credit report allows you to identify any unauthorized inquiries or inaccuracies and take steps to correct them. You can get free credit reports from AnnualCreditReport.com.
Avoiding Unnecessary Credit Applications
Only apply for credit when you genuinely need it. Avoid applying for store credit cards or other credit lines just to get a discount, as these applications can add unnecessary hard inquiries to your report.
Conclusion
Understanding the intricacies of hard inquiries is essential for managing your credit health effectively. While a single hard inquiry typically has a minor impact, multiple inquiries in a short period can lower your credit score. By spacing out credit applications, shopping for rates wisely, and monitoring your credit report regularly, you can minimize the negative effects and maintain a healthy credit profile. Remember, responsible credit management is a long-term strategy that involves understanding and proactively addressing the factors that influence your credit score.
