How Varying Levels of Credit Inquiries Can Affect Your Credit Score
Shopping for a home loan? It’s best to do it within 30 days of a credit pull so your score doesn’t drop.
When you apply for credit, such as a car or home loan, you authorize lenders to “inquire” for a copy of your credit report from a credit bureau. Too many inquiries could lower your credit score and result in higher interest rates when you borrow, which can translate into paying more over the life of the loan.
If you’ve ever looked at your credit report, you may have seen credit inquiries by businesses you don’t know. Some of them count toward your credit score and others don’t.
Hard Credit Inquiry
Hard inquiries happen when you apply for a loan. They affect your credit score, though not by much.
Hard credit inquiries show up when you’ve applied for credit: car loan, mortgage, student loan or credit card, for example. Each is a credit check that indicates a lender has reviewed your credit because you’re applying to borrow money through them.
Applying for credit affects your credit score because opening several credit accounts in a short period of time represents greater credit risk, according to My FICO, a credit scoring company.
If you’re rate shopping for a single loan, such as a home loan, it will be treated as one request on your credit report as long as the inquiries are made within 30 days. You may be shopping at multiple mortgage lenders, but those numerous credit requests will count as one and won’t affect your credit score if done within 30 days. Some newer credit scoring companies allow up to 45 days of shopping, and some drop it to 14 days.
Soft Credit Inquiry
These aren’t generated by shopping for credit, and they don’t affect your credit scores. Soft credit inquiries include:
- Checking your own credit score.
- Receiving pre-approval offers you didn’t apply for.
- Additional credit checks by a lender you already do business with.
- Credit checks by your employer.
- Credit checks by your insurance company.
Impact on Credit Scores
While soft credit inquiries don’t affect your credit score, hard inquiries do. New credit makes up 10 percent of a FICO credit score, and inquiries and new credit accounts are part of that.
For most, a credit inquiry will take less than five points off their FICO score, according to My FICO. Having few accounts or a short credit history, however, can cause a credit inquiry to have more of an impact.
Many inquiries can mean greater risk. People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than those with no inquiries, according to My FICO.
Inquiries remain on credit reports for two years. Only those within the past year count toward most scoring models; the older ones are ignored.