5 Things You Should Know About Credit Report Inquiries

If you’re working to improve your personal finances, proper credit management is likely at the top of your list. You may be doing everything you can to keep your credit healthy, but if you don’t pay attention to some of the seemingly minor credit behaviors, you could lose out on precious points. Many factors can affect your credit score. If you are looking for ways to improve your credit scores, you’ll have to master some of the basics.

For example, a credit report inquiry is one factor that can have an impact on how high or how low your credit score is. You may have heard about credit report inquiries, but you may not quite understand exactly what they are or how they work. Understanding inquiries and how they affect your credit score will give you the knowledge you need so that you can become a more empowered consumer.

Are you unclear about the different types of credit report inquiries? Here are five things you should know.

1. A credit inquiry is a request to review your credit

man with credit card

Man with credit card | iStock.com

A credit inquiry is defined as a request to check your credit. Whenever you submit an application for credit you are giving the lender authorization to ask for or inquire about a copy of your credit report. If you want to see a list of inquiries related to your credit history, all you have to do is order a copy of your credit reports for the three major credit reporting bureaus (Equifax, Experian, and Transunion). You can do this free of charge when you visit annualcreditreport.com.  

2. An inquiry is categorized as either “hard” or “soft”

man looking at credit card

Man looking at credit card | iStock.com

The terms hard and soft credit inquiry are used often, yet many don’t know the difference between the two. Both hard and soft inquiries refer to requests made by financial institutions, retailers, and other lenders to review your credit. Both hard and soft inquiries appear on your credit report, but a soft inquiry is only seen by you. Hard inquiries can be seen by you as well as other businesses when you submit an application for credit.

A hard inquiry requires your permission, and happens when a potential lender reviews your credit report and uses the information to decide whether to extend a credit offer. A soft credit inquiry, however, does not require your permission, and is considered to be more routine. One example is when a current lender does a credit check to see if you’re still a good credit risk. A soft credit inquiry also occurs when you check your own credit, when you’re pre-approved for a credit card or loan, or when an employer checks your credit report. Hard and soft inquiries stay on your credit report for 24 months.

3. Checking your own credit won’t hurt your credit score

Woman looking at smart phone

Woman looking at smart phone | iStock.com/AntonioGuillem

Have you been putting off checking your credit because you’re afraid it will lower your score? Well, worry no more. Contrary to popular belief, checking your own credit won’t affect your credit score. In fact, you can check your credit as often as you’d like, so go to town. Have a credit-check party if you want. Whenever you access your own credit history, a soft inquiry is included in your report as a record.

If you regularly check your credit report, this is a good habit that you should continue. Research has found that checking your credit on a regular basis can improve your overall credit health. Roughly 73% of consumers who reviewed their credit seven or more times each year said that this behavior had a positive impact on the way they managed credit, according to a Discover survey. In addition, 76% of respondents who regularly checked their credit said their score improved significantly during the year.

4. Only hard credit inquiries affect your score

Businessman generating his credit report | Source: iStock

Businessman generating his credit report | iStock.com

When it comes to your credit score, you only have to worry about hard credit inquiries. Only credit inquiries that result from applications for new credit affect your score. Make sure that you don’t have too many hard inquiries on your credit report. Several hard credit inquiries within a short amount of time will cause lenders to view you as a higher credit risk. This is partly because consumers with six or more hard inquiries can be up to eight times more likely to declare bankruptcy than a consumer with no inquiries, according to myFICO. Furthermore, the more recent your hard inquiries, the more of an impact it will have on your credit score. However, over time, the impact lessens.

5. Generally, multiple inquiries in a short period of time won’t significantly affect your score

Credit report with score | Source: iStock

Credit report with score | iStock.com

Generally, multiple inquiries from auto, mortgage, or educational lenders won’t affect your score if the inquiries are made within a short period of time. Rather, they are usually treated as a single inquiry. When it comes to FICO scores calculated from an older version of the scoring formula, this period is 14 days. When newer FICO score versions are used, the period is any 45-day time span. Applying for multiple credit cards within a short period of time, however, carries slightly more risk. An additional credit inquiry will shave off less than five points from your FICO score.

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