What is a Hard Credit Inquiry?

man with credit card

Man with credit card | Source: iStock

Even if you don’t know much about credit management, it’s likely at some point you’ve heard of a hard credit inquiry, also called a hard pull. But what is it and how does it affect you? Read on for an explanation.

Hard inquiries appear when you apply for credit. These inquiries could lower your credit scores. Depending on your current scores, this could be bad news for you because it could cause you to be hit with higher interest rates when you apply for a loan. Consequently, you’ll pay more money to have access to the loan.

How credit inquiries work

Whenever a business accesses your credit report, an inquiry is created. When a company views your credit information, this is reported to the credit bureau. So, if a business requests your score and report from TransUnion, for example, this is recorded on your TransUnion credit report with the name of the business that made the request, the date, and the nature of the inquiry.

How does a hard inquiry affect you?

Know that a credit inquiry won’t have a big impact on your scores unless you’ve been frequently applying for new credit over a lengthy period of time. New credit (inquiries and new credit accounts) comprise 10% of your FICO score. One hard inquiry would reduce your score by just a few points.  

The time it takes you to apply for credit makes a difference. If multiple inquiries are made within in a short amount of time, this will count as one inquiry when you shop around for an auto loan, mortgage, or student loan, for example. Newer versions of FICO scores allow a 45-day window for these inquiries.

Inquiries can have a bigger impact if you don’t have a lot of accounts or if you have a short credit history. Lenders see excessive inquiries as a greater credit risk. According to myFICO, consumers with six or more inquiries on their credit reports are eight times more likely to declare bankruptcy than consumers with no inquiries.

How long does an inquiry stay on your credit report?

It takes a while for an inquiry to fall off your credit report, so shop wisely. When you shop around for new credit, inquiries stay on your report for two years. However, the FICO scoring system only considers inquiries from the previous 12 months. Also, for certain types of credit, FICO scores may take into account the amount of time that has passed since you last opened a new credit account.

A word of caution

If you’re new to the world of credit, you might think it’s best to open as many accounts as possible as soon as you can. This isn’t a good idea. If you don’t have much of a credit history, don’t open several new accounts too quickly. These new accounts will reduce your average account age. If you have little credit history, this will have a much bigger impact on your FICO scores. The average age of your accounts makes up 15% of your FICO score. The same goes if you’ve had credit for many years. Opening new credit accounts can also reduce your average account age and lower your scores.

Sheiresa Ngo is a certified credit counselor.

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