How credit inquiries affect your credit score

Hard and soft inquiries are two different kinds of inquiries potential creditors can make on your credit report, and they can each have a different effect on your credit score.

Jin Lee/AP/File
A Wall Street sign hangs near the New York Stock Exchange, in New York.

Have you noticed inquiries on your credit report? Not sure what they mean? Soft and hard inquiries are the result of potential creditors assessing your credit report after you've applied for things such as a credit card, mortgage, or car loan. Hard and soft inquiries each affect your credit differently. Read on to learn more:

What Are Soft Inquiries?

Soft inquiries typically occur when your credit report is pulled for a background check. This can occur when you are applying for a new job, getting pre-approved for lending offers, and even when you check your own credit score.

While they will usually show up on your credit report, this isn't always the case. Plus, they won't affect your credit score, so you don't need to be concerned about them.

What Are Hard Inquiries?

Hard inquiries occur when a lender pulls your credit report to make a lending decision. This takes place most commonly when you apply for a loan, credit card, or mortgage. However, there are other reasons that your credit may reflect a hard inquiry, such as when you request a credit limit increase. They can, in some cases, lower your FICO score by one to five points and can remain on your credit report for up to two years. Typically, the more hard inquiries on your credit report, the likelier it is to affect your score.

Multiple hard inquiries in a short period of time can cause significant damage to your credit. When multiple hard inquiries come through at once, the credit bureaus assume you are desperate for credit or can't qualify for the credit you need. Any future creditors may also take this information and assume that you are a high risk borrower, which will reduce your chances of getting the credit you need. In fact, according to myFICO, people with six hard inquiries or more on their credit are up to eight times as likely to file for bankruptcy, compared to people with no inquiries — meaning that more inquiries usually means greater risk.

Exceptions to the Rule

There are certain instances that are gray areas, which may result in a soft or hard inquiry depending on the situation (such as when you rent a car or sign up for new cable or Internet service). If you aren't sure about whether your actions will result in a soft or hard inquiry, you can simply ask the financial institution you are requesting financing from.

Another exception is when you are rate shopping. Generally, your FICO score will only record one single inquiry within a 14–45 day period if you are shopping for the best mortgage, auto loan, or student loan rates. By doing all of your shopping for the same type of loan within a two-week span, you can reduce the effect on your credit.

Disputing an Unauthorized Inquiry

If a hard inquiry occurred without your permission, you may be able to dispute it. This can be done by calling or writing the creditor and asking them to remove the unauthorized hard inquiry from your credit report. You can also dispute them directly with the credit bureau. Otherwise, if you've authorized the hard inquiry, it can take up to two years to disappear from your credit report.

How Inquiries Will Affect Your Future

As is the case with anything that negatively affects your credit score, inquiries can affect your ability to get good loan rates. More hard inquiries means a lower credit score, which means fewer credit options or a higher interest rate. This will ultimately mean you will pay more over the life of the loan.

How Will Your Credit Recover?

The good news about a hard inquiry is that if you aren't doing them often, they aren't going to have a big effect on your credit. For instance, factors like your payment history, credit history, and credit utilization rate are weighted much more heavily. Continue monitoring your credit every month to ensure that there are no unauthorized hard inquiries or other issues so that you can continue to maintain the highest score possible. (See also: 10 Surprising Ways to Negatively Affect Your Credit Score)

On the other hand, if you already have bad credit, then an additional hard inquiry can have an even greater impact on your score. Try keeping your hard inquiries to only one or two a year, if possible.

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. This article first appeared at Wise Bread.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.