If need be, you can always consult a credit repair company in Austin, Texas to better understand the concept.
How Do Hard Inquiries Affect Borrowers?
There are many factors associated with your overall credit score. This includes the new credit accounts that are opened such as new loans or credit cards, the amount you currently owe, and your payment history; another factor that goes into your overall credit score is the number of times your credit score has been pulled in the past year or two. This is why credit checks are put into two categories: hard inquiries and soft inquiries. As a result, knowing how each type of inquiry affects your credit is essential so you can have more control over your credit score as a whole. This is a very important concept to familiarize yourself with in detail, especially if you wish to understand other important credit issues like what happens if you go over your credit limit.
That said, hard inquiries are a necessary part of obtaining a new loan or credit card, but their impact will differ from one individual to the next. Nonetheless, too many hard inquiries can lead to a decrease in your score–if your credit report shows that you have fifty hard inquiries in the past two years, the credit reporting agencies believe you are desperate for a loan.
Such credit checks can also affect your credit score and take off as much as five points from your FICO score, which may seem small to some, but it can mean the difference between you securing a loan or failing to get one. However, in most cases, it’s not a big deal.
If you’re trying to shop around for a credit card or a student loan, it’s best not to procrastinate and only apply for credit cards you think you’ll receive. All those inquiries within a fourteen- to forty-five-day period are considered one inquiry on your credit report. So, if you’re looking to shop around, stay smart during your journey–but having excessive hard inquiries might make you seem high-risk to lenders. Don’t let these facts keep you from shopping around for the lowest interest, but don’t go crazy with your application. Also, remember that FICO gives a thirty-day grace before loan inquiries affect your credit score. If you can minimize the number of hard inquiries on your credit report, then it’s a good idea to do just that.
Soft Inquiries
On the other hand, soft inquiries (or soft pulls) don’t affect your credit score at all. They’re utilized for various reasons, often without your permission, including when credit cards pre-approve you for loans. It wouldn’t be in their best interest to waste postage on a person they would probably not accept, so they check their credit. Additionally, when companies do background checks, soft inquiries happen, as well. Companies might check your credit to indicate that you’re a responsible adult with good habits; checking your credit score doesn’t affect it at all. It’s often a common misconception that checking your credit score will lower it, but that’s not the case. Whether getting your free yearly credit report from any credit bureaus or using an on-demand service like Credit Karma, they’re all recorded as soft inquiries. These types of inquiries might be included on your credit report, but that often depends on the specific credit bureau. You can check your credit score as often as you’d like.
Hard or Soft: More Information
Certain situations could involve either a hard inquiry or a soft inquiry. These include leasing a car, opening a utility account, requesting a higher credit limit, and more.
If you’re unsure whether a credit check will be recorded as a soft or a hard inquiry, then it’s essential to contact the lender or financial institution. Being informed when it comes to your financial history is very important. Also, if there’s a hard inquiry on your report that you didn’t authorize, you can contact the lender and ask it to remove it; you can dispute inquiries directly with the credit unions if the lender isn’t budging. It’s vital to keep the information on your credit score as up-to-date as possible to get the most honest report.
How Long Can a Hard Inquiry Last on Your Report?
In most cases, a hard inquiry will remain on your credit report for about two years. During this period, lenders can see all the inquiries made, but this will only impact your credit score for approximately one year maximum. As a result, when you apply for a credit card, you may see a minor drop in your credit score approximately one month after the hard pull. However, with time, the impact will diminish, and if you practice responsible credit behavior, you will recover from the drop quickly.
Another thing to keep in mind is that if you want your credit score to remain strong, you should only apply for credit that you genuinely need. For instance, when you want to secure a mortgage. We also recommend that you avoid applying for new kinds of credit during this stage to help your score remain as high as possible.
How Can You Protect Yourself From Hard Inquiries?
To best protect yourself against hard inquiries, it’s crucial to maintain a solid credit score to minimize the effect a hard inquiry would have on your credit. Ask the lender to make a soft inquiry instead–it might be just as effective for you to pull your credit report, print it out, and show that instead of making a hard inquiry on your own.
Hard and soft inquiries are very different, but they’re both essential to know when it comes to your credit. Hard inquiries happen with your consent and often affect your credit score, whereas soft inquiries often happen without your permission but don’t affect your credit score. Knowing these two separate concepts gives you the best chance of taking control of your credit score and staying as fiscally responsible as possible.
In Summary
Suppose you are feeling nervous or worried about what kind of impact several hard inquiries could have on your credit report. In that case, you could be duped into accepting a particular offer earlier than expected to prevent them from appearing on your credit report. However, the best thing you can do is to consider and evaluate your situation before you settle on one creditor. In most cases, the impact of hard inquiries on your credit score may be less than you believe. As mentioned above, all inquiries taking place within a fourteen to forty-five day window will be counted as a single pull, as credit agencies expect you to shop around a bit, especially for large loans like mortgages and auto loans. So, feel free to check out your options–as long as it’s within that window of time.
The more informed you are about such matters, the better off you will be when it comes to the preparation of sec