How Credit Inquiries Affect Your Credit Score

If you’re trying to improve your credit score or getting ready to apply for credit, it’s crucial to know how credit inquiries can impact your credit. Most credit inquiries have a relatively small impact on your credit score (if any), but if you aren’t careful, your score can experience pitfalls.

Here’s everything you need to know about how they work.

What Is a Credit Inquiry?

Anytime someone checks your credit report including yourself, lenders, banks or even landlords, it’s recorded on your report as a soft or hard credit inquiry.

Each of the three credit bureaus—Equifax, Experian and TransUnion—keep track of the inquiries on your report because it can say a lot about the risk you pose to lenders. While lenders aren’t too worried about soft inquiries because it doesn’t impact your credit score, they do take caution around hard inquiries. In the lender’s eye, multiple hard inquiries can indicate you’re taking on more credit than you may be able to afford.

For example, according to FICO, “People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy.”

Hard Vs. Soft Credit Inquiry

There are two types of credit inquiries: hard credit inquiries and soft credit inquiries—also referred to as hard and soft credit checks. Here’s how they differ.

Hard Credit Inquiries

Hard credit inquiries are typically the marks you need to worry about affecting your credit score. These inquiries indicate that you’re applying for new debt, such as a mortgage, personal loan or credit card, and are visible to anyone who checks your credit report. Other circumstances may also require a hard inquiry, too, such as:

• Applying for certain jobs
• Setting up new utility services
• Applying for new insurance
• Completing a background check
• Requesting a credit line increase
• Using a debit card to pay for a car rental
• Applying for a new apartment or home rental

Soft Credit Inquiries

Soft credit inquiries, on the other hand, don’t impact your credit. They happen whenever you check your credit report or get a free credit score update. Soft inquiries also recorded when companies preemptively pull your credit for preapproval offers for new credit cards and financial products. Unlike hard inquiries, soft inquiries are only visible to you and not others who may check your report.

How Many Points Does a Hard Inquiry Affect Your Credit Score?

In general, hard inquiries don’t have as much of an impact on your credit score as other credit factors. Credit inquiries are only responsible for 10% of your credit score while your payment history makes up 35% of your score.

For most people, according to FICO, a new hard credit inquiry will only drop your credit score between one and five points. While a hard inquiry stays on your credit report for two years, it only impacts your score for one year.

It’s important to note that these inquiries can stack up. For example, if you get a new mobile phone and service plan in January and then apply for a new credit card in February, you may see a bigger hit to your credit score than just five points due to multiple hard inquiries.

However, there is a way around racking up multiple hard inquiries if you’re rate shopping for a loan or mortgage. Here’s how.

What About Rate Shopping?

You can typically check your interest rate with a lender without a hard credit check through a prequalification process. After you prequalify and choose a lender, that’s when it will run a hard credit check.

However, not every lender offers prequalification and you may encounter hard credit checks while rate shopping for some products. For example, if you shop around for mortgage preapprovals, lenders are likely to run a hard credit check from the start.

In these cases, there’s still good news. If you do all of your rate shopping for mortgages, student loans or auto loans within a short period of time, it’ll be recorded as a single hard credit inquiry on your report, even though multiple lenders may have done a hard credit check.

The time period you have to complete your rate shopping varies. FICO has many different credit scoring models that lenders can request. For some of these models, your rate-shopping period is 14 days, while for others, it’s 45 days. Plan on doing all of your rate shopping within the same two-week period if you can to be on the safe side.

Credit Inquiries After Preapprovals

If you’re preapproved for a mortgage or loan, it can take some time before you actually find the house or the car you want to buy.

When you received your preapproval letter, it was based on your current credit score and financial situation. If things change—such as if you apply for a new credit card or utility service in the meantime—it might hold up the closing of the loan because your report may reflect new hard inquiries that weren’t present at the time of preapproval.

Because adding new hard inquiries to your report after you’ve been preapproved can cause challenges when it comes to receiving your financing, it’s best to avoid hard credit inquiries until after the fact. For example, avoid hard credit checks until you’ve finished buying your new home or car.