When you apply for a credit card, personal loan, car loan, or other types of financing, lenders request a copy of your credit report. This report includes your credit history and the number of credit inquiries you’ve had recently. Having too many could indicate to lenders that you are desperate for funds. Here’s what you need to know about credit inquiries before you apply for another loan.
What Are Credit Inquiries?
A credit inquiry is a notation on your credit report that you’ve requested a lender to provide a loan. That means that a lender has pulled a copy of your credit report. Credit inquiries remain on your credit report for up to two years, though they become less impactful.
You should continually monitor these inquiries on your credit report, and when you do not recognize one, be sure to request its removal from the credit bureau. However, there are two types, each having a different function and impact on your credit score.
Hard Inquiries
A hard inquiry means that you have contacted the lender and applied for a loan. This typically occurs when you complete a formal application for a credit card, personal loan, or another financial service. The hard inquiry is the most impactful, and it shows the lenders that you have the desire to obtain a loan for some reason.
Hard inquiries impact your credit score. You will want to be careful with requesting them too often, which can significantly impact your score.
Soft Inquiries
A soft inquiry is a bit different. This occurs when a lender wants to determine if you might be a good fit for them. To resolve this, they will do a soft credit pull. This does not impact your credit score. Instead, it is a way for lenders to find out if you may be qualified for their loan.
In recent years, some credit card companies and other lenders have devised to allow consumers to request a soft pull to determine if they qualify. This is ideal for several reasons:
- The credit bureaus will learn about the soft inquiry. It will be noted on your credit score.
- Soft inquiries like this do not impact your score in any way.
- If you do not get the loan for any reason, the soft credit pull will not hurt you.
In other words, a soft credit inquiry is an excellent way to determine if you are eligible for a loan without actually taking a hit on your credit score. If you agree to a soft pull of your credit score, be sure the company clearly states it will not impact your credit report and then verify this later.
How to Monitor Credit Inquiries
How do you know who requests your credit score and if they are hard or soft inquiries?
You can see these on your credit report from each credit bureau: Equifax, Experian, and TransUnion. When you request a free copy of your credit report, you’ll see this information listed and separated by the type of inquiry it is. There is typically a date on the credit inquiry, and you can expect it to be removed within two years of that date.
The Impact of Credit Inquiries on Credit Scores
Now that you know if you have credit inquiries, the next step is understanding how to handle them. There are several factors to keep in mind.
Limit Hard Inquiries
This is the most essential step in managing your credit from a credit inquiry review. The more times you request a loan or apply for a credit card, the more it hurts your credit score. If you apply for numerous credit cards in a short period, it can hurt your credit score. The better solution is to limit card or loan applications to no more than one every six months.
Shop for Loans with Care
This can hurt you when you want to obtain a car loan. You head into the dealership, which applies to numerous lenders for you, creating a dozen dings on your report. Most often, these are soft pulls and will be removed. Some credit bureaus and monitoring companies will lump together these types of loan inquiries, where you’ve made more than one request within a short period, as a single transaction.
Hold Off on Loan Applications
Try not to apply for a car or mortgage loan until some time has occurred between your last hard inquiry and your new application. Pushing this out to a year or more allows lenders to see that you’re making wise decisions. It could also help keep your credit score up.
Remove Errors
You can use AnnualCreditReport.com to obtain a free copy of your credit reports. Use that to verify the accuracy of these hard inquiries on your account. Do this at least one time every year. If you find errors, report them to the credit bureaus immediately.
Also, note that if you see inaccuracies here, it could mean someone else is applying for credit in your name. You may wish to report these claims to local law enforcement officials to ensure you are not a victim of identity theft.