How Do Credit Inquiries Affect My Credit?

credit-inquiries-on-credit-report

An inquiry occurs when your credit report is pulled. This may happen when you apply for a new credit card or take out a personal loan. There are two types of inquiries that assess your report: hard inquiries and soft inquires. Here, I have broken down the difference between the two and how they can influence your credit score.

Hard Inquiries

Hard inquires can have a negative impact on your credit score. This type of inquiry generally occurs when a financial company or lender checks your credit report. This can be for a mortgage, student loan, credit card or auto loan. For example, you may apply to take out a loan with a private lender and before the lender approves you, they’ll want to make sure your finances are intact.

Hard inquires may initially lower your credit score by a few points, but the important thing is to not worry. A credit score fluctuates often. It is important to work on maintaining good credit and making sure all of your payments are made on time.

Still, you should always be cautious of how many hard inquires you have in a short amount of time. It’s a good idea to avoid applying for several credit cards at once, as this can negatively impact your credit. Also, having several credit cards could put you at risk for winding up in debt if you don’t manage them responsibly.

Removing a Hard Inquiry You Didn’t Approve

If you see a hard inquiry on your credit report that you weren’t aware of, you may want to consider calling the creditor to let them know you did not approve it. In most cases, they will conduct a brief investigation and remove it.

Just like any error on your credit report, you can also dispute inquiries. You can do this by filing a dispute directly with the credit bureaus and stating your case. It is important to keep your finances in shape and maintain good credit, so if you ever see an error or incorrect inquiry, you’ll know to take action. (Unfamiliar hard inquiries could also be a sign of identity theft.)

Soft Inquiries

Soft Inquires, on the other hand, aren’t generated by shopping for credit. They most often occur when an outside company or person wants to perform a background check. This will typically put a soft inquiry on your credit report, letting you know the action took place. However, this will not lower or damage your credit score. While hard inquires require your permission, soft inquires often do not. Don’t be alarmed — this shouldn’t affect your credit score in any way!

Another example of a soft inquiry is pulling your own credit score (which you can do for free on Credit.com). Keep in mind, checking your credit score will not hurt your credit score. Other soft inquiries can include pre-approval for credit cards, inquiries generated by an employer or inquiries generated by an insurance company.

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My Father Passed Away. Can I Use His Credit Card Now?

inherit a credit card

Unless you’ve co-signed, you generally can’t be held liable for a loved ones’ outstanding balance when they pass away. But can you inherit a good line of credit? One Credit.com blog commenter recently wrote to us, asking if a sibling can take over their deceased father’s credit card:

“My father passed some months ago with zero debt on a card, but he had a high amount of available credit. Can the executor of his estate, my sibling, ask the issuer to take over his card?”

The Perks of a High Credit Limit

It makes sense that the sibling would want this credit card with a high limit: It could improve her score. Credit scoring models consider your credit utilization rate — that is, how much debt you owe versus credit at your disposal — when calculating your score. Generally, you want to keep this rate below 30% (and ideally less than 10%) — and a card with no balance and a high limit can help you do that.

Unfortunately, banks and credit card issuers aren’t in the habit of transferring accounts to heirs. “Credit card accounts are non-transferable,” Nessa Feddis, senior vice president at the American Bankers Association, says. “People have to qualify for a credit card.”

The one in question was issued based on the father’s ability to repay his debt, so unless the sibling initially co-signed the contract (which it doesn’t appear she did), an account transfer would be a no-go.

The siblings could contact the issuer — as they should since executors must provide notice of a borrower’s death to creditors. But in order to open a similar account, the potential borrower would need to demonstrate her own creditworthiness. In order words, she’d need to apply for her own account and get approval, with terms and conditions being contingent upon her income and credit score. The father’s account would likely be closed, so no one should use the card in the meantime. Executors “have the obligation to pay any outstanding balance from the estate,” Feddis adds. “They must discontinue using the card.”

Building Your Credit 

Not all credit cards are created equal, and spending habits generally dictate which card is best. It’s always a good idea to do some research before applying for one, whatever your motivation. Also be sure to check your credit so you have a better idea of whether you’ll be approved. (Most credit card applications generate a hard inquiry on your credit report, which can ding your score. You can pull your free annual credit reports at AnnualCreditReport.com and see your credit scores for free each month on Credit.com without hurting your scores.)

If you or a family member wants to improve your credit utilization rate, you could work to pay down some balances. Or just ask for a higher limit on a card that’s already in your wallet (though this may require a credit pull as well).

More on Credit Reports & Credit Scores:

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