Soft Credit Inquiry What Is It And How Does It Impact Your Credit Scores
When you or anyone else receives a copy of your credit report, the credit bureau that granted access to your information places an entry on your file called a credit inquiry. A credit inquiry lets you know that someone obtained your credit information.
In the credit scoring world, there are hard and soft credit inquiries. A hard credit pull takes place when someone like a lender reviews your credit information for a loan application review . Soft inquiries, by comparison, occur when you ask a credit bureau for a copy of your own credit report.
Furthermore, a soft credit inquiry only shows up on the credit reports you pull. Lenders never even see them.
How Many Points Will A Hard Inquiry Impact Your Credit Score
A hard credit inquiry could lower your credit score by as much as 10 points, though in many cases the damage probably wont be that significant. As FICO explains: For most people, one additional credit inquiry will take less than five points off their FICO Scores.
FICO also reports that hard credit inquiries can remain on your credit report for up to two yearsbut when FICO calculates your credit score, it only considers credit inquiries made in the past 12 months. This means that if your credit inquiry is over a year old, it will no longer affect your FICO credit score.
Why Does A Lender Checking Your Credit Lower Your Score
When a lender checks your credit report, itâs called a hard inquiry. Credit scoring models consider hard inquiries and, as a result, these credit checks have the potential to lower your credit score.
You might not like the idea that letting lenders check your credit could lower your credit score. But there is a valid reason why a hard inquiry may impact your credit score in a negative way. Applying for a lot of credit in a short period of time indicates a higher level of credit risk.
When credit score developers review credit reports to create scoring models, they look for trends among consumers. Thereâs a clear connection between the number of times someone applies for new credit and how likely they are to pay bills severely late in the near future. Credit scores predict how likely you are to pay a bill 90 days late or later in the upcoming 24 months based on your past credit actions.
You donât need to decide to stop applying for new credit altogether, however. Itâs fine to seek new credit from time to time, especially if youâre trying to rebuild your credit rating. Even people with exceptional FICO Scores pursue new credit opportunities and may have some hard inquiries on their credit reports.
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How To Avoid Hard Inquiries
Heres how to avoid hard inquiries and help protect your credit score from taking a hit.
Dont apply for too many credit cards
The easiest way to avoid hard credit inquiries is to not apply for too many credit cards. Every time you do apply for a credit card, a hard inquiry will show up on your credit report, potentially damaging your credit score.
Think carefully before applying for a new credit card. Do you really need another credit card, or do you instead need to better manage the credit you already have?
If you are rate shopping, do it over a short period of time
Shopping among several different lenders for the best interest rate wont have too big of an impact on your score. Thats because when you receive several different hard inquiries from the same type of lender say auto lenders or mortgage lenders during a short period of time, those inquiries are counted as just one total hard inquiry. Thats because its obvious that you are weighing the offers of several different lenders, but for just one loan.
If you are shopping for a mortgage loan, then, make sure to apply with these lenders during a short period of time, within 14 to 45 days, depending on the FICO® scoring model being used. That way, the hard inquiries that these lenders pull wont each be counted separately.
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What Can Lower Your Credit Score
Checking your credit score won’t lower it, but there are a number of factors, in addition to hard credit checks, that can lower your score.
The VantageScore 3.0 scoring model, which Chase Credit Journey uses, is made up of six factors:
- Payment history: tracks whether your payments are made on time. Late payments can hurt your credit score.
- how long you’ve had your different credit accounts open. The longer your credit history might mean the better your credit score, depending on other factors.
- the amount you owe compared with the amount of credit you have, also known as your . As a rule of thumb, it’s best to keep credit usage under 30 percent.
- Total balances: the amount of your recently reported balances, both current and delinquent. The lower your balance, the better.
- Recent credit: the number of new credit accounts you’ve opened. Creditors and lenders typically run a hard credit check each time you apply for credit, and multiple hard inquiries in a short period of time can lower your credit score.
- Available credit: the amount of credit available to you. This also influences your credit utilization ratio, so the more available credit you have compared with the amount of credit you’ve used, the better.
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What Is A Credit Inquiry
Your credit report contains a history of your interaction with credit and debt. That includes information about your history of making on-time versus late payments, the amount of debt you have, how many loans and credit cards you have open, and recent applications for credit.
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When you apply for a credit card or a loan, the lender usually reaches out to one of the three major credit bureaus Experian, Equifax, and Transunion to ask for a copy of your credit report. The lender uses the information in that report to make its lending decision and to set the interest rate if it decides to offer a loan.
The credit bureau that supplied your credit report makes a note of that application on your credit report. Other lenders who request a copy of your credit report from that credit bureau can see your recent application for a loan through that note.
Do Credit Inquiries Affect My Fico Score
FICO’s research shows that opening several credit accounts in a short period of time represents greater credit risk. When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time , your FICO Scores can be lower as a result. Although FICO Scores only consider inquiries from the last 12 months, inquiries remain on your credit report for two years.
If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.
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What Other Factors Can Lower Your Credit Score
Checking your credit score will not reduce it, but there are a lot of factors that might lower your score in addition to hard credit checks.
- A longer history is better for your credit scores.
- The more credit you have , the better your credit will be.
- A more than 30% utilization rate will begin to harm your scores, and the lower your rate, the better. Those with the highest credit scores have utilization rates in the low single digits.
- New credit: The lender conducts a hard inquiry on your credit report every time you apply for credit. Given FICO, each new hard inquiry can lower your credit score by five points.
- Available credit: The more this kind of credit you have, the better.
- Total balances: the sum of your recently reported current and delinquent balances. The lower your balance, the better.
- Payment history: If one of your payments is more than 30 days late, your credit score may suffer.
Whats The Difference Between A Hard And A Soft Inquiry
To understand if checking credit score will lower it, you need to know the difference between the two types of inquiries first. There is a soft inquiry and a hard inquiry.
The first is usually done for the following reasons:
- Tracking your FICO score
- Getting a quote for auto insurance
- Employee background check
- Sending pre-approved promotional materials
Soft checks dont require your permission and have no effect on your FICO score. These are done for informative reasons only.
The second type can cost you between 5-10 points. So why will checking credit score lower it if done through a financial institution? Well, lets look at the main reasons why such inquiries take place:
- Loan application
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If Youve Applied For Financing Or Other Credit And The Lender Checked Your Credit Scores As Part Of The Process Youve Probably Experienced Whats Called A Hard Credit Inquiry
When lenders check your credit with a hard inquiry , they often make a note of their official review in your . They use that information to assess how youve handled credit in the past, how often youve paid your debts and bills on time, and whether you have any derogatory marks on your credit reports.
They also want to know how much credit youre juggling and how long youve been managing your credit. All of these factors help creditors decide whether to extend new credit to you or give you additional credit.
You can help yourself prepare for a hard credit pull by monitoring your credit reports and making sure there arent any unpleasant surprises. Checking your own credit reports often involves whats known as a soft credit inquiry, or soft pull.
Lets take a deeper look at the differences between hard credit inquiries and soft credit inquiries.
How Long Do Inquiries Stay On Credit Reports
- While these types of questions are constantly being disputed
- We know that inquiries only remain on credit reports for 2 years
- And FICO just factors them into scoring for the past 12 months
- So theyre only meaningful for a short period of time and typically dont have a strong effect on scores anyway
A reader once asked me, Do credit inquiries ever go away? Although there seems to be much dispute about this, credit inquiries only remain on your credit report for two years.
Additionally, FICO scores only factor in inquiries as part of their scoring methodology for the previous 12 months.
In other words, even if they are present on your credit report, theyre only meaningful from a credit-scoring perspective for a single year.
The rest of that 24-month period they just serve as additional information to you and your creditors.
Additionally, Fair Isaac, the founder of the FICO score, has improved its scoring model to distinguish rate shopping versus a consumer attempting to open a large number of different accounts.
The latter borrower would probably see their credit score drop because a series of new credit accounts tends to lead to greater credit risk.
But a consumer with multiple inquiries related to the same type of loan within a 14-45 day shopping period will generally see no adverse effect to their credit score, as only one inquiry should be counted against them.
For example, think of a person who shops with multiple lenders to obtain a home loan.
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Soft Inquiries Dont Affect Your Scores
Checking your own credit report or credit score wont lower your credit score. Because soft inquiries only appear on copies of credit reports that consumers request for themselves, they will never have any impact on your credit score.
A creditor also wont be able to see the soft inquiries on its copy of your credit report. Therefore, credit scores aside, it cant consider the soft inquiries during its underwriting process at all.
When Should You File A Dispute
There are a few circumstances when you may want to dispute a hard inquiry and have a good chance of getting it removed.
- If the hard inquiry is from over 24 months ago, it may no longer be timely and should possibly be removed from your credit reports.
- If a creditor checked your credit but you never gave it your verbal or written permission to do so, it may have violated the FCRA and the hard inquiry could be removed.
- If someone else applied for credit in your name, you can dispute the fraudulent hard inquiry as you didnt authorize the credit check. Also, look for an associated account, dispute that account and contact the creditor to let it know that youve been the victim of fraud.
You can file a dispute with each of the credit bureaus online, by mail or over the phone. The dispute process with data furnishers can vary depending on the organization.
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Whats A Soft Credit Inquiry
According to the Consumer Financial Protection Bureau , a soft checkâalso known as a soft inquiryâis a review of your credit file and existing accounts. Soft inquiries donât impact your credit scores.
Examples of Soft Credit Inquiries
- Viewing your own credit reports and scores.
- Opening a bank account.
- Pre-qualified or pre-approved credit card offers.
Why You Should Check Your Credit Score
Your credit score reveals your creditworthiness, or, in other words, tells a lender how much of a risk they are taking if you are the borrower. With this in mind, the higher your number, the less of a risk you are. This, in turn, makes you more eligible to receive approval for a policy, loan, or service.
Checking your score often can help you know your overall financial health, and steer you to make knowledgeable financial and credit decisions. In doing this, youll also be able to understand what types of things affect your score, and learn how to avoid potential drops in your score.
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What Is The Best Place To Check Your Credit Score
Regardless of where you obtain your credit score, there will likely be differences. Equifax and TransUnion credit scores vary due to differences in the proprietary software used by these agencies, as well as different weightings applied to the risk factors.For a free Equifax credit score, try Borrowell. For a free TransUnion credit score, I use Credit Karma.
What To Know About Rate Shopping
Research has indicated that FICO Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.
In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.
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Checking Your Credit Doesnt Affect Your Score
When checking your own credit score on websites like Credit Karma and Credit Sesame soft credit pull and does not impact your credit score. When you check your own credit scores its considered a soft inquiry and does not hurt your credit score.
When a lender pulls your credit report, it will negatively affect your credit score. Thats because its a hard inquiry. A hard inquiry is when you authorize a lender or credit issuing company to check your credit.
My Income Impacts My Credit Score
False. Your salary and income are considered measurements of your capacity to pay bills, not your potential credit risk.
“Income isn’t even on your credit reports so it can’t impact your score,” Ulzheimer says. “Wealth metrics aren’t considered by credit scoring models.”
While it’s good to know that the size of your paycheck has no influence on whether you have good or bad credit, you should know what does impact your score. Variables include your payment history, amounts owed , length of credit history, new credit and credit mix .
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When Does Checking My Credit Score Lower It
Hard inquiries, also called hard pulls, are the kind that can cost you points. They happen when someone pulls your credit for the purpose of deciding whether to extend credit to you. These hard inquiries should not happen without your knowledge or consent.
You can review your hard inquiries on NerdWallets free credit report summary, which updates weekly. You can also check your free credit reports at AnnualCreditReport.com to see who has looked at it in the past two years. Consumers currently have access to those reports weekly.
A hard inquiry might cost you up to five points according to FICO, the creator of the most widely used scoring formulas. With VantageScore, an increasingly popular credit scoring model, a hard inquiry is likely to cost even more.
In contrast, a soft inquiry or soft pull occurs when you or a creditor looking to preapprove you for a loan or credit card checks your score. A soft inquiry has no effect on your credit score.
So, if you apply for several credit cards close together, you might see a significant drop in your credit scores. Before you begin applying, take time to conduct research on the best credit cards for your specific financial needs, while keeping eligibility requirements in mind.
A hard inquiry stays on your credit report for two years, but any effect on your credit score fades sooner than that.