What Is a Hard Inquiry?
When you apply for a credit card or a loan, the lender requests your credit report from one or more credit bureaus. The lender then does a deep dive into your report to assess your creditworthiness. This action is called a hard inquiry, and it can take up to five points off your credit score.
Here are a few examples of hard inquiries:
— You apply for a credit card.
— You apply for a mortgage to purchase a home.
— You apply for a personal loan.
— You apply to rent an apartment.
— You apply for a car loan.
— You apply to refinance your mortgage.
There are also soft inquiries, but this type of inquiry doesn’t lower your credit score.
Examples of a soft inquiry:
— You review your own credit report.
— You receive a credit card offer in the mail. Issuers do a soft inquiry on your credit report to determine whether you meet the basic requirements for a credit card.
— You apply for a job, and the employer reviews your credit report. Note: The employer must have your permission to do this.
— You apply for insurance, such as homeowners or car insurance.
— Your card issuer decides to increase (or decrease) your credit limit. Note: If you initiated a request for a credit limit increase, it’s likely to be a hard inquiry.
[Read: Best Credit Cards.]
How to Protect Your Score While Rate Shopping
If you’re planning to buy a house or get an auto loan, shopping around for the best rate can save you money. Fortunately, there’s a way to do rate shopping without getting hit with multiple hard inquiries that can damage your score.
Here’s the rule: Get preapprovals from lenders within a 14-day window, and it will count as only one hard inquiry. With mortgages, this period is often referred to as the “mortgage credit pull window.”
But whether you’re trying to get a mortgage or a car loan, if you complete your rate shopping within a 14-day window, it minimizes the damage to your credit score. And let’s face it, the last thing you need when you’re trying to get a low interest rate is to suddenly possess a lower credit score.
To be clear, the period for the rate-shopping window can vary by the type of credit score that’s used. With FICO scores, you actually may have a 45-day window for rate shopping, but some older FICO scores limit it to 14 days. VantageScore also limits mortgage shopping to a two-week period.
You don’t know which score will be used by a lender, so to cover all of your bases, get your rate shopping done within two weeks.
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How Long Do Hard Inquiries Stay on Your Credit Report?
Both hard and soft inquiries stay on your credit report for two years. Since hard inquiries do hang around on your report for a while, you want to be careful not to apply for a lot of credit in a short period.
The reason is too many inquiries can be a red flag to issuers. It gives the impression that you must be desperate for credit. Having too many hard inquiries on your credit report is one of the reasons a credit card company might deny a new credit card application.
New credit represents 10% of your FICO score. That might not sound important, but too many inquiries can mean the difference between, for example, good credit and fair credit. Space your credit applications at least three to four months apart, and you should be fine.
How Much Does a Hard Inquiry Affect Your Credit Score?
A hard inquiry can knock up to five points off your score. I know that’s vague, but the exact impact depends on what’s in your credit report, how long you’ve had credit and many other factors as well. Just so you’re prepared, assume your credit score will go down a few points.
Fortunately, the impact on your score decreases after the first year. Just pay your bills on time and maintain a low utilization ratio on your credit cards, and you’ll find that your score will bounce back pretty quickly.
[Read: Best Cash Back Credit Cards.]
Can You Remove a Hard Inquiry From Your Credit Report?
If the hard inquiry is the result of a credit application that you initiated, it can’t be removed from your credit report. You’ll have to wait two years, and then it will fall off your report.
But if the inquiry on your credit report is the result of fraud, then you should take steps to dispute it. The Consumer Financial Protection Bureau has steps you can follow to dispute an error.
To catch fraud early, I recommend looking at your credit reports from all three bureaus throughout the year. You can find your free credit reports by visiting AnnualCreditReport.com.
More from U.S. News
The Difference Between Hard and Soft Inquiries
Best Apps for Your Free Credit Score
How to Shop for a Mortgage Without Hurting Your Credit Score
How Long Do Hard Inquiries Stay on Your Credit Report? originally appeared on usnews.com
