Hard Credit Inquiries vs Soft Credit Inquiries

Credit inquiries are included in the “New Credit” category that makes up 10% of your credit score. That’s not a huge amount, but it’s still important.

So what exactly is a credit inquiry?

Credit inquiries occurs when you or someone else checks your credit report with one of the three credit reporting agencies. There are two types of credit: soft inquiries and hard inquiries.

Soft Credit Inquiries

Soft credit inquiries happen when you check your own credit or when a lender or credit card company checks your credit to screen you for a pre-approved offer. Soft inquiries do not affect your credit score.

Why? Well, when you check your own credit you’re proving that you are responsible! That should definitely not count against you. And when someone else checks your credit to see if they are interested in making you an offer, it’s basically a legal form of snooping. You didn’t ask them to check your credit, you have no idea that they’re considering sending you an offer, you may never even have heard of the company!

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Hard Credit Inquiries

Hard credit inquiries are another story though. A hard inquiry occurs when you are actually applying for new credit. For example when you apply for a new credit card, apply for a mortgage, car loan, a student loan, a new apartment lease, sometimes even when you rent a vehicle.

Hard inquiries DO affect your credit score. Each inquiry seems to decrease your credit score by 1 or 2 points. That’s not a huge hit, but if your credit score is on the borderline between good and fair or fair and poor, one or two points may be the difference between an approval and a denial.

FICO only considers hard credit inquiries recorded within the last two years in the calculation of your credit score. So if you have a lot of inquiries that are older than 2 years, you don’t really have to worry about them anymore in terms of your credit score.

However, hard inquiries will have more of an effect on your credit score if you have a very short credit history or have very few accounts on your credit report. So if you’re new at this credit thing, your best bet is to move slowly. Only apply for one new line of credit at a time and use that card responsibly for about 6 months before trying to apply for an additional line of credit.

Rate Shopping and Credit Inquiries

Sometimes when you are rate shopping for a mortgage or a car loan, you may get quotes from 5, 6, or even 7 different companies. If you’re not careful, all of these hard inquiries could give your score a pretty big hit. To make sure you are protecting your credit score, concentrate your rate shopping into a period of no more than 15 to 45 days – the shorter the time, the better. The FICO scoring system is designed to consider hard credit inquiries for the same kind of loan executed over a short period of time like this as one inquiry when calculating your score.

Just remember, this really only counts for auto loans and mortgages. Applying for six or seven credit cards all within the same few weeks will definitely drop your score.

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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.

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