When discussing credit scores, it’s easy to forget about inquiries. Inquiries, also known as new credit, only account for 10% of your credit score, so many people don’t give them a second thought.
However, something as small as a credit inquiry could be the reason why your score falls from excelling to good. This could lead to higher interest rates and other fees, which no one ever wants.
But inquires aren’t the same. US News My Money explains the difference between hard and soft inquiries so you can know how they impact your credit.
What Is A Hard Credit Inquiry?
Any time you apply for a new credit card, the lender checks your credit report from either Experian, Equifax, or TransUnion. This check is also known as a “pull” or hard inquiry.
Hard inquiries could knock several points from your score. Depending on your credit history, it could be between zero and give points. Some borrowers may not even see a change in their rating.
What Is A Soft Credit Inquiry?
Soft inquiries are triggered by a range of activities, including reviewing your report on your own. Many people believe that soft inquiries hurt your credit score, but this isn’t the case.
Financial institutions and other creditors with whom you hold accounts could also pull your credit report to see if you are still a qualifying borrower. Some credit card issuers, for instance, often assess your report and credit rating every month.
If you’ve ever received a letter in the mail saying that you are preapproved for a credit card, it’s because the card issuer performed a soft inquiry. If you match their target consumer, they will send you a promotional offer.
How To Avoid Hard Inquiries
It’s not always possible to avoid a hard credit inquiry. For starters, US News My Money recommends being smart about managing your finances. That includes refraining from applying for lines of credit you know you won’t get.
Another way is to know your credit health. There are many ways to check your credit score for free. Most credit card companies provide a complimentary score. While it may not be from the FICO model, it will give you a clearer picture of your creditworthiness. You can also find a number of credit score apps and free educational ratings online. Becoming an informed consumer will make it easier to dodge needless hard credit checks.
One way to prevent your score from taking a hit is to take care of your comparison shopping in a short time frame. Most creditors can tell when you are shopping for the best rate, so if you take care of it in a short amount of time, you may just receive one hard pull instead of several.
You should know that not every credit card company performs a hard check. If you apply for a credit card designed for people with bad credit, the issuer probably won’t check your credit score. Make sure you do your due diligence and thoroughly read the terms and conditions before agreeing to a credit card that promises approval even if you have less than perfect credit.
Creditors to conduct soft inquiries to verify your identity. But if they need more proof to confirm that it’s really you, they may make a hard inquiry.
If you seek a credit card or personal loan from a large bank, the lender will run a hard inquiry. On the plus side, you’ll receive your preferred card or loan, and if your score is in good enough standing, the check will have a marginal effect on your score.
How Long Does A Hard Inquiry Stay On Your Report?
According to US News My Money, hard credit checks can linger on your report for up to two years, while FICO score disregards them after just one.
But besides your credit score, if you have multiple hard inquiries in a short timeframe, lenders will perceive you as desperate for money. This is particularly problematic if you have a limited credit profile. So make sure to wait between applications for new credit lines and don’t apply for more than one card at any given time.
What If There Is A Mistake On Your Credit Report?
Mistakes are bound to occur, so if you stumble upon an incorrect credit inquiry on your profile, file a dispute as soon as possible. You can check your credit report for free from now until April 2021 at AnnualCreditReport.com.
When you start a dispute, send a letter to the bureau in question explaining the mistake. Make sure to add a copy of your report with the discrepancy highlighted. By law, the bureau must investigate the dispute and respond to your letter in 30 days or less.
- Harzog, Beverly. “The Difference Between Hard and Soft Inquiries.” U.S. News & World Report, U.S. News & World Report, 23 Dec. 2020, creditcards.usnews.com/articles/difference-between-hard-and-soft-credit-inquiries.