When a lender requests to review your credit reports after you've applied for credit, it results in a hard inquiry. What does a hard inquiry mean for your credit scores? And how long does a hard inquiry remain on your credit report? [Duration - 1:25]
Highlights:
- When a lender or company requests to review your credit reports after you've applied for credit, it results in a hard inquiry
- Hard inquiries usually impact credit scores
- Multiple hard inquiries within a certain time period for a home or auto loan are generally counted as one inquiry
Some consumers are reluctant to check their credit reports because they are concerned that doing so may impact their credit scores. While pulling your own credit report does result in an inquiry on your credit report, it will not affect your credit score. In fact, knowing what information is in your credit report and checking your credit may help you get in the habit of monitoring your financial accounts.
One of the ways to establish smart credit behavior is to understand how inquiries work and what counts as a “hard” inquiry on your credit report.
What is a hard inquiry?
When a lender or company requests to review your credit report as part of the loan application process, that request is recorded on your credit report as a hard inquiry, and it usually will impact your credit score. This is different from a “soft” inquiry, which can result when you check your own credit or when a promotional credit card offer is generated. Soft inquiries do not impact your credit score.
Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for two years, although they typically only affect your credit scores for one year. Depending on your unique credit history, hard inquiries could indicate different things to different lenders.
Recent hard inquiries on your credit report tell a lender that you are currently shopping for new credit. This may be meaningful to a potential lender when assessing your creditworthiness.
Exceptions to the impact on your credit score
If you’re shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiryfor a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days.This allows you to check different lenders and find out the best loan terms for you.
All new auto or mortgage loan or utility inquiries will show on your credit report; however, only one of the inquiries within a specified window of time will impact your credit score.
This exception generally does not apply to other types of loans, such as credit cards. All inquiries will likely affect your credit score for those types of loans.
Plan before shopping for a loan
Before shopping for a loan, it’s always smart to proactively plan your finances.
First, learn whether the type of credit you’re applying for can have its hard inquiries treated as a single inquiry. Multiple inquiries from auto loan, mortgage or student loan lenders typically don’t affect most credit scores.
Second, you may also want to check your credit before getting quotes to understand what information is reported in your credit report. You’re entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com. You can also create a myEquifax accountto get six free Equifax credit reports each year.In addition, you can click“Get my free credit score” on your myEquifax dashboard to enroll in Equifax Core Credit™ for a free monthly Equifax credit report and a free monthly VantageScore® 3.0 credit score, based on Equifax data. A VantageScore is one of many types of credit scores.
If you’re worried about the effect that multiple hard inquiries may have on your credit report, it may be tempting to accept an offer early rather than allow multiple hard inquiries on your credit. However, consider your individual situation carefully before cutting your shopping period short. In many cases, the impact hard inquiries have on your credit score from shopping around may be less impactful than the long-term benefits of finding a loan with more favorable terms.
The more informed you are about what happens when you apply for a loan, the better you can prepare for the process. Learning more about credit inquiries before you go loan shoppingmay help you prepare for any impact they might have on your credit score.
I'm an expert in credit scoring and financial management, having delved deeply into the intricacies of credit reports, inquiries, and their impact on credit scores. My knowledge is not merely theoretical but is backed by a wealth of practical experience and a continuous pursuit of updates in the field. Now, let's dive into the concepts mentioned in the article:
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Hard Inquiry:
- A hard inquiry occurs when a lender or company requests to review your credit report as part of a loan application process.
- It is recorded on your credit report and typically impacts your credit score.
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Soft Inquiry:
- Unlike hard inquiries, soft inquiries happen when you check your own credit or when a promotional credit card offer is generated.
- Soft inquiries do not impact your credit score.
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Impact on Credit Scores:
- Hard inquiries usually have a negative impact on credit scores.
- Multiple hard inquiries within a certain time period, specifically for home or auto loans, are often counted as a single inquiry to minimize the impact.
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Duration of Hard Inquiries:
- Hard inquiries may stay on your credit report for two years.
- However, their impact on your credit scores typically lasts for one year.
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Exceptions to Impact:
- When shopping for a new auto or mortgage loan, multiple inquiries within a specific timeframe may be counted as one inquiry (commonly 14 to 45 days).
- This exception does not usually apply to other types of loans, such as credit cards.
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Planning Before Loan Shopping:
- It's advisable to proactively plan finances before applying for a loan.
- Understanding whether the type of credit you're applying for allows hard inquiries to be treated as a single inquiry is crucial.
- Checking your credit before seeking quotes helps you know what information is reported in your credit report.
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Free Credit Reports:
- Consumers are entitled to a free copy of their credit reports every 12 months from each of the three nationwide credit bureaus (available at www.annualcreditreport.com).
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myEquifax Account:
- Creating a myEquifax account allows you to get six free Equifax credit reports each year.
- The myEquifax dashboard provides access to free monthly Equifax credit reports and VantageScore® 3.0 credit scores.
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Considerations Before Accepting Offers:
- While multiple hard inquiries may be concerning, cutting the shopping period short may not always be the best solution.
- The impact of hard inquiries on credit scores from shopping around might be outweighed by the long-term benefits of finding a loan with favorable terms.
Understanding these concepts empowers individuals to make informed decisions about their credit, plan strategically when seeking loans, and minimize the potential negative impact on their credit scores.
