Most people aren’t keen on checking their credit reports. Oftentimes, the rationale behind this is somewhere between the lines of “I feel like checking it will impact my credit score.” However, when you check your credit report and notice the words “Hard Inquiry,” don’t fret just yet.
Knowing what information you find in your credit report is vital in taking charge of your financial records and cultivating intelligent credit behavior moving forward. Thus, a credit inquiry is critical. Nonetheless, there’s a stark difference between checking your credit score and granting access to someone else to do so.
We explore what hard inquiry means and how it impacts your credit score. But first things first:
WHAT IS A CREDIT INQUIRY?
A credit inquiry is a process where someone (or company) requests for your credit information from any of the top three credit bureaus: TransUnion, Experian, and Equifax. The bureaus, aforementioned, can share your information, if the person making the request has the legal backing to do so.
It is your right to know who has had access to your credit information. As a matter of policy, your credit bureau is under obligation to document each credit inquiry in your credit report.
WHAT IS A HARD INQUIRY?
Hard inquiry typically starts with you. When you apply for a loan from a lender, the lender requests to check your credit report to assess your worthiness regarding credit. That’s to say your creditor is looking to check how likely you’d pay back the funds you want to borrow and reduce risk. The lender may opt to request from TransUnion, Experian, and Equifax. In some cases, they may request your credit information from other credit bureaus to get access to your credit scoring.
That request, when approved by the credit bureau, is registered as a Hard Inquiry. When you have a great credit score, you pose less risk to your creditor, and you’d be more likely to qualify for the loan. A hard inquiry is also called ‘Hard pull.’
Hard inquiries are different from soft inquiries, as soft inquiries aren’t recorded in your credit report. Unlike soft inquiries, hard inquiries do have an impact on your credit, whether approved or not.
EXAMPLES OF HARD INQUIRIES
Hard inquiries aren’t limited to loan applications. Some other examples of hard inquiries include:
- Apartment rental applications
- New utility applications
- Credit card applications
- Collection agency skip tracing
- Application for credit limit increase
- Loan applications for students, automobile, personal, mortgage, etc.
- Request for lines of credit
HOW MANY POINTS DOES A HARD INQUIRY AFFECT CREDIT SCORE?
According to the analytic company FICO, a hard inquiry will cause your credit score to be less than 5 points. And as the hard inquiry grows older, the score will reduce until it is no longer significant.
When it comes to your credit scores, other factors might impact it even more than credit scores. While hard inquiries influence 10% of your credit score from the FICO analysis, your payment history affects 35% of your score.
WHY HARD INQUIRIES ARE SIGNIFICANT
When a company or lender requests your credit report, your credit score is likely to drop a few points. The reason isn’t farfetched. People who apply for loans or credit are considered risky than those who do not.
According to FICO analysis, people with five or more credit inquiries in the last year are more likely to surpass 90 days past the due repayment than customers with zero hard inquiries. More so, people with six or more hard inquiries are eight times more likely to file for bankruptcy than those without hard inquiries.
From all indications, lenders use credit scores to determine the risk factor of approving your loan or credit card request. Hard inquiries affect your credit scores which may affect their decision to approve your request.
HOW LONG DO HARD INQUIRIES AFFECT CREDIT SCORE?
When you apply for a loan or credit card, hard inquiries can remain in your credit report for up to 2 years. However, a hard inquiry will have minimal affect your credit score after one year.
HOW MANY HARD INQUIRIES IS TOO MANY?
When you make several applications for credit or loans, it could drastically impact your credit score, particularly if you’re new to this process.
For instance, applying for auto, mortgage, and utility loans could result in multiple hard inquiries, which will impact your credit score. However, for instance, if you have 3 mortgage inquiries, these will be roped into a single hard inquiry – if they’re made within a 14 – 45 days window. Thus, your credit score will only be impacted by one inquiry.
The only exception here is if you apply for different types of credit cards. Every hard inquiry will be documented, and your credit score will reduce.
HOW TO REMOVE A HARD INQUIRY ON YOUR CREDIT REPORT
You cannot do anything about a hard inquiry that is genuine (that is, you were applying for a credit). However, there may be instances when you might spot a hard inquiry that is illegal. In that case, you must remove it before it impacts your chances of getting your loan approved.
There are several steps you should take:
- Constantly check your credit report. You need to check your credit report from all of the top 3 credit bureaus. There may be instances where the same information isn’t recorded across all three reports. Thus, it is vital to get all 3 to check for consistency. You can also check with the Annual Credit Report, which you can check for free.
- Check for inaccurate hard inquiries. Now that you’ve gotten your credit report, you should critically review the inquiry section to check for legitimacy. If you see an inquiry for a creditor, who you currently do business with, you should bring this to their attention. It is known as an account review inquiry and should be logged as a “soft inquiry”.
- Tender a dispute. Inaccurate hard inquiries could simply be a fraudulent act or an honest mistake. It is your responsibility to tender these dispute errors with TransUnion, Equifax, and Experian, if you need help doing this, you can schedule a free credit consultation with The Phenix Group.
Regularly monitoring your credit report is crucial in maintaining your credit score. There are several apps at your disposal to extract this information. Review and ensure you’re getting the appropriate information from your credit score and address discrepancies where necessary.