What Do Credit Inquiries Mean on a Credit Report?

Anytime you or anyone else accesses your credit report, the credit reporting agency takes note of that inquiry and lists it in your credit file. When you view your credit report, you can see the names of all the firms that have accessed your credit report.

Hard Versus Soft

Credit inquiries are separated into two categories: hard inquiries and soft inquiries. A hard inquiry occurs any time you apply for new credit or an increase or amendment to an existing credit product. All other kinds of inquiries are classified as soft inquiries. When you apply for a job, a prospective employer can perform a soft inquiry. Other soft inquiries occur when a vendor such as a cable TV company checks your credit or when you order a copy of your own credit report.

Credit Report

Your credit report contains a variety of information, but the credit reporting agencies do not share all the information contained in your file with every person or entity that requests a copy of your report. When you view your credit report, you see all the hard and soft credit inquiries, but you do not get to see your actual credit score unless you pay a fee. When lenders view your credit report, they can see your credit score, but they can only see hard credit inquiries and not soft inquiries.

Credit Score

Soft inquiries have no impact on your credit score. However, hard inquiries have a negative impact on your score. You lose a few points whenever you apply for new credit, but you can have a significant drop in your credit score if you submit a large number of credit applications within a short period of time. Credit agencies assume that people who are constantly applying for credit are experiencing financial difficulties and are therefore high risk borrowers. Credit scores of such people are adjusted accordingly. However, you only see a minor drop in your score if you submit two or three applications for the same kind of credit, such as a loan, within a few weeks, because credit scoring models do not punish you for shopping for the lowest rates. You will experience a bigger drop in your score if you consistently make applications for new credit products week after week and submit multiple applications for different kinds of credit products.

Considerations

Generally, people and businesses have to obtain your permission before accessing your credit report, but sometimes you may not realize you have consented to give certain firms permission to access your file. When you apply for a car loan at a dealership, the dealer may ask to check your credit to obtain approval for a loan. However, the small print on the credit application usually enables the dealer to supply your information to multiple creditors. Consequently, you end up having multiple hard inquiries on your credit report from different financial firms as a result of one credit application.