Understanding Hard Inquiries on Your Credit Report

HardInquiriesAs we’ve written about previously on the Equifax Finance Blog, some consumers are reluctant to check their credit report because they are concerned that doing so may impact their credit score. While pulling your credit report does result in an inquiry on your credit report, it will not affect your credit score. In fact, checking your credit report may help you get in the habit of monitoring your financial accounts.

One of the best ways of establishing credit smart behavior is to understand how inquiries work and what counts as a hard inquiry on your credit report.

What is a hard inquiry?

When a lender or company makes a request to review your credit report as part of the loan application process, that request is recorded on your credit report as a hard inquiry, and it usually will impact your credit score. This is different from a soft inquiry, which can result when you check your own credit or when a promotional credit card offer is generated. Soft inquiries typically do not impact your credit score.

Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your report for up to 24 month s. Depending on your unique credit history, they could indicate different things to different lenders.

Recent hard inquiries on your credit report tells a lender that you are currently shopping for new credit. This may be meaningful to a potential lender when assessing your creditworthiness.

Exceptions to the impact on your score

If you’re shopping for a new auto loan, mortgage loan, or student loan,the multiple inquiries are generally counted as one inquiry.

The timeframes vary for these exceptions: Hard inquiries may have a limited effect of just a few weeks or potentially up to 45 days, depending on the credit scoring model being used.

This situation does not apply to credit cards or when you apply for several credit cards at once..

Plan before shopping for a loan

Before shopping for a loan, it’s always smart to proactively plan your finances.

First, learn whether the type of credit you’re applying for can have its hard inquiries treated as a single inquiry. If so, determine the applicable timeframe. Then you can plan your shopping period, accordingly.

Second, you may also want to check your credit before getting quotes to understand what information is reported in your credit file. You can obtain a free annual credit report from Equifax, Experian and Transunion each per year here.

If you’re worried about the effect that multiple hard inquiries may have on your credit file, it may be tempting to accept an offer early rather than allow multiple hard inquiries on your credit. However, consider your individual situation carefully before cutting your shopping period short. In many cases, the impact hard inquiries have on your credit score from shopping around will likely be minimal compared to the long term benefits of finding a loan with a low interest rate.

The more informed you are about what happens when you apply for a loan, the better you can prepare for the process. Making a plan for how you will manage hard inquiries now, before you start shopping, may help you prepare for any impact they might have on your credit score.