Understanding Credit Hard Inquiries: What You Need to Know

Your credit score is a crucial factor in determining your financial health. It can affect everything, from getting approved for loans and credit cards to renting an apartment or even landing a job. One of the factors that can have an impact on your credit score is hard inquiries.

In this article, we will explain what hard inquiries are, how they work, and their impact they will have on your credit report, so read on to learn more.

Credit Report Hard Inquiry Explained in Simple Terms

A credit hard inquiry occurs when a lender or creditor checks your credit report before approving you for new credit. This type of inquiry shows up on your credit report and can lower your score by a few points.

Hard inquiries happen when you apply for:

• A mortgage
• An auto loan
• A personal loan
• A student loan
• A business loan
• Credit card applications

That’s why it’s important to keep your credit score high when it comes to this type of inquiry. Of course, there are many tips and tricks on how you can improve your credit score. 

What Is a Hard Inquiry on Your Credit Report and How Does It Affect You?

When you apply for new credit, lenders want to know if you’re financially responsible enough to pay back the money they lend you. They do this by checking your past payment history and current debt levels through various types of inquiries.

A hard inquiry happens when someone pulls or “checks” your full credit report as part of the application process. These types of inquiries stay on your record for two years but only affect it during the first 12 months after they occur.

Of course, since the hard inquiry does affect your credit score, it’s advisable to boost it up before undergoing this type of inquiry. Make sure to consult with your lender on tips and tricks before applying.

Understanding the Impact of a ‘Hard Check’ on Your Credit Score

New credit accounts are usually lower for 10% of FICO scores, which means that every time someone runs a hard check against yours, it could potentially hurt it slightly. This is usually less than five points per inquiry according to FICO’s website.

However, multiple recent instances where too many “hard” enquiries have been made may cause significant damage over time. Statistically speaking, people with six or more requests tend towards bankruptcy eight times more often than those without any inquiries at all.

‘Hard Pulls’ vs ‘Soft Pulls’: The Difference Between Types of Credit Checks

There are two types of credit checks- hard pulls and soft pulls. A soft pull is when someone looks at your credit report for informational purposes only, such as a pre-approval offer or background check. Soft pulls do not affect your score in any way.

On the other hand, a hard pull happens when you apply for new credit, and the lender needs to see your full credit report before approving you. Hard pulls can lower your score by a few points but usually have little impact on it overall.

How Do Lenders Use Information from a Hard Inquiry On Your Credit?

Lenders use information from hard inquiries to determine whether they should approve you for new credit or not. They look at factors like:

• Your payment history
• Current debt levels
• Length of time with current creditors
• Employment status and income level

Based on this information, lenders decide if they want to lend money to you or not. All this information will give them a good understanding whether or not you are a creditworthy borrower, which will help them offset many risks that come with lending the money. 

Why Do Lenders Perform Hard Credit Checks?

Lenders perform hard checks because they want to know if you’re financially responsible enough to pay back the money they lend you. They do this by checking your past payment history, current debt levels, employment status, and income level through various types of inquiries.

Here are some reasons why lenders might perform a hard check:

• To determine whether or not to approve you for new credit.
• To set interest rates based on risk factors like payment history and debt levels.
• To verify identity information before approving an application.

Conclusion

In conclusion, understanding how hard inquiries work is essential if you want to maintain good financial health. 

While one inquiry won’t hurt much, multiple recent instances where too many “hard” enquiries have been made may cause significant damage over time. So, it’s essential to be mindful of how often you apply for new credit and only do so when necessary.

Lastly, keep in mind that you can always get your credit report from one of three major bureaus so you can keep up to date with your overall score.

FAQs

1) How long does a hard inquiry stay on my record?

According to Experian, hard inquiries remain on your record for 25 months but only affect it during the first 12 months after they occur.

2) How much will one inquiry lower my FICO score?

FICO states that one inquiry typically lowers most people’s scores by less than five points per inquiry.

3) What is considered too many “hard” enquiries?

Statistically speaking people with six or more such requests tend towards bankruptcy eight times more often than those without any inquiries at all according to FICO’s website.