Credit Inquiries

If you want to obtain a personal loan or a credit card, you will no doubt encounter credit inquiries. Hard inquiries can negatively affect your credit score, but there are ways to mitigate their impact. Understanding why inquiries are initiated and how they work can help you better navigate the world of debt and personal loans.

Let’s review the essentials of credit inquiries that every borrower should know.

Understanding what a credit inquiry is

A credit inquiry refers to when a party makes a request to access your credit report for a number of different reasons. The common purpose of a credit inquiry is to evaluate your _creditworthiness, _which is how suitable you are to receive financial credit.

There are two kinds of credit inquiries: hard and soft. The former affects your credit score whereas the latter does not. While both function as credit checks, the purposes differ. Hard inquiries are for situations like determining whether you should receive a loan from a lender. Meanwhile, soft inquiries are mainly for credit card and loan pre-approval offers.

When a credit inquiry is made, your credit report is pulled. Lenders and companies will be able to see relevant financial information, but not everything. They can see your credit behavior and history. However, they can not automatically see:

• Your income
• Your bank accounts
• Your marital status
• Your medical history
• Your education and student personal information

The difference between a hard and soft credit inquiry

Hard inquiry

Hard inquiries are also referred to as hard credit checks and hard pulls. A hard inquiry is typically performed by a party wanting to assess your creditworthiness for an official loan application. They may be a lender, a person, or an organization.

A hard inquiry negatively impacts your credit score every time another party makes a hard credit check. The good news is that a hard inquiry’s impact on your credit score is only temporary and will usually have faded away within a year.

The reason that a hard inquiry affects your credit score is that when someone pulls a hard credit check on you, it indicates that you need credit. To some lenders, this is viewed as a risk, which should reflect upon your credit score.

Soft inquiry

A soft inquiry — AKA a soft pull or soft credit check — will not change your credit score.

While it functions as a credit check and might show up on your credit report, you might not even be aware when someone does a soft inquiry. Companies don’t need your permission to do a soft credit check on you. However, others can’t see other soft inquiries on your report, so you don’t have to worry about limiting your soft inquiries unless there are certain red flags indicating fraudulent activity.

Soft inquiries are made when you try to pre-qualify for a loan or when someone performs a check on your report for non-credit-related purposes. For example, if an inquiry is part of a background check for informed hiring or for when you want to rent an apartment, it is usually a soft inquiry that can’t affect your credit score.

If you’re curious about your own credit and want to review it, this also counts as making a soft inquiry. It won’t affect your credit score and you’ll be able to see full details of your credit report.

Institutions looking to send out financial and credit pre-approval offers often take the initiative to do a soft inquiry. Have you ever gotten unexpected letters in your mailbox about being pre-approved for a credit card? It means the company did a soft inquiry and found you a suitable credit candidate. This process where creditors search for acceptable prospects is also known as pre-screening.

Unlike financial institutions, employers would need to get consent from you to pull your credit report, even for soft inquiries.

How credit inquiries affect your credit score

Each hard inquiry typically makes your credit score dip by 5 points or less. While this might not seem like a lot, many borrowers seek out numerous lenders when trying to obtain a personal loan. If you apply for many loans in a short period of time, you can quickly rack up credit score damage.

On the other hand, soft inquiries don’t change your credit score. This is why it’s generally recommended to get pre-qualified for personal loans before you officially apply.

The impact of multiple credit inquiries on your credit score

It’s understandable to want to find the best lender option for your needs, but it can be risky to apply for too many loans in a short period of time.

Depending on the purposes of the inquiries and how close to each other in time they are made, the inquiries might not have to heavily impact your credit score.

Both main credit score types, VantageScore and FICO, have conditions that allow you to offset the impact of hard inquiries on your credit score. Here are example conditions you can meet:

FICO: If you apply for the same kind of loan from multiple lenders within 45 days, they may be treated as a single hard inquiry. This means that after the first hard inquiry is made, other hard inquiries made very soon after will be ignored.

VantageScore: If hard inquiries are made by eligible companies and for eligible kinds of loans, all inquiries within a two week window are treated as a single hard inquiry.

Since terms and policies can change over time, you should check the official credit score sites to see how to minimize the effect of hard inquiries on your credit report at any time.

How long credit inquiries stay on your credit report

Hard inquiry: A hard inquiry typically stays on your credit report for a year, but it may remain on your report for up to two years. While it’s on your credit report, its impact diminishes over time. After that, it will no longer have any effect on your credit report.

Soft inquiry: A soft inquiry remains on your credit report for about a year or even less–if it even shows up on your report at all. However, other people who pull your credit report won’t be able to see these soft inquiries.

If you want to see what credit inquiries have been made, you will need to soft pull your own credit report.

The importance of monitoring your credit report for unauthorized inquiries

Since hard inquiries dip your credit score each time one is made, it’s important that they’re legitimate, authorized inquiries. Otherwise, you’d be taking hits to your credit score without reaping any potential benefits from them.

Unauthorized inquiries not only hurt your credit score, but also pose a serious risk to your financial security. They are a red flag for identity theft and identity fraud, which can have severe consequences, such as your assets being stolen.

Monitoring your credit report can help you swiftly identify fraudulent activity and even prevent damage from incurring.

Here are a few strategies to implement that can help you deal with unauthorized credit inquiries.

Put up a credit alert

The three major credit bureaus allow you to place 90-day credit alerts for fraud. If any creditors try to check your credit, they’ll see an alert on your credit report that informs them they should verify your identity.

Dispute the inquiry

Other than notifying credit bureaus and taking action to protect your identity and credit, you might also want to dispute the unauthorized inquiry to get rid of it from your credit report.

To dispute an inquiry, you will need to contact the three credit bureaus and send a dispute letter to them outlining why the hard inquiry should not have been made.

Credit freeze

Freezing your credit restricts access to your credit report so no one will be able to make an inquiry on it. If you want to place a credit freeze, you should contact all three major credit bureaus individually: TransUnion, Equifax, and Experian. This is because placing a freeze with just one of them won’t freeze your credit with the other two bureaus.

Reach out to the company that made the unauthorized access

While some companies may not adhere to your request, it may be worth a try to tell the company that they’ve made a reporting error. This simplifies the process because if the company notifies the three credit bureaus of the erroneous credit changes, you won’t have to personally prove that they were illegitimate.

Document and report the fraudulent activity

You can file a report if you suspect that there is identity theft. The Federal Trade Commission allows you to officially report identity theft. This complaint can be sent to the three credit bureaus as well as your banks.

How to dispute inaccurate credit inquiries on your credit report

If you notice any inaccuracies on your credit report, it is important to dispute your credit report as soon as possible. You will need to contact both the credit bureaus and the company that provided them with the inaccurate information. If a credit inquiry shows up that shouldn’t have been made, you should consider the following.

1. Notify the credit bureaus

To dispute an error on your credit report, you should contact each of the three credit bureaus: Experian, Equifax, and Transunion. Make sure that you explain in a letter to them what you believe is an error or an unauthorized inquiry on your credit report. This may be done by mail, online, or by phone.

To prove inaccurate inquiries, you will generally need supporting documentation. Examples of good evidence include:

• Your loan application
• Correspondence with the party that provided the wrong information or made the inaccurate inquiry
• Other evidence that shows the inquiry on your report is either unauthorized or inaccurate

2. Pull your own credit report

You should request a copy of your own credit report to get a better idea of what’s on your report. A free copy can be procured from each of the three major credit bureaus: TransUnion, Experian, and Equifax.

3. Submit a dispute with the party that provided the inaccurate credit information

This party, also known as the information furnisher, can be anyone who provided the erroneous information about your credit to a credit bureau. Furnishers examples include:

• Your bank
• Your credit card company
• Your lender
• Your landlord

By submitting a dispute, you might be able to get them to notify the three credit bureaus that inaccurate credit information has been provided.

The role of credit inquiries in the loan approval process

Credit checks are one of the most important steps in the loan approval process. After you submit a loan application, the lender will perform a hard credit check to see your credit report.

If your report shows that you are not adequately creditworthy, the lender may choose to reject your loan application or give you unfavorable terms and conditions due to the high risk the lender will be undertaking.

How to minimize credit inquiries when shopping for loans

Since hard inquiries can dip your credit score, it’s good to know that you can minimize their impact on your credit by implementing certain strategies when shopping for personal loans. The first way to minimize credit inquiries is to get pre-qualified or pre-approved for a loan before you make the official loan application.

The second way is to submit your loan applications within a brief period of time so that they can count as a single hard inquiry. The specific requirements for combining hard inquiries will depend on the kind of loan you’re seeking.

The benefits of pre-qualifying for loans to avoid unnecessary credit inquiries

When it comes to shopping for personal loans, it’s generally recommended that borrowers go for loan pre-qualifications before they commit to filing a proper loan application. This is because during the pre-qualification process, lenders will only do soft inquiries, which don’t have any real effect on your credit score. You can easily shop around for loans without worrying about the effect on your credit score.

The lower your credit score, the harder it will be to get loans and credit extensions with favorable terms. Any personal loans you apply for might have higher interest rates and more stringent repayment requirements. If you have the time and means to try and pre-qualify for loans to avoid unnecessary hard inquiries, you probably should.

About The Author

Ru Chen

Content Writer

Ru Chen is a content writer with several years of experience in creating engaging and well-researched articles. She mostly writes about business, digital marketing, and law. In her free time, she can be found watching horror movies and playing board games with her partner in Brooklyn.

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