Consumers often worry about how credit report inquiries affect their credit scores. Some credit pulls do not affect credit scores at all, while others do. Credit inquiries that affect your score are reported on your credit report for a specific period of time, and may ultimately contribute to decisions lenders make on credit applications you submit. Credit inquiries may be necessary at times, but for the best credit score, it's a good idea to monitor the number of inquiries you make each year and submit credit applications infrequently.
Soft Inquiries
Soft inquiries are credit pulls made by companies that already have a file on you. These may be collection agencies, credit card companies and banks where you have a mortgage or vehicle loan. Companies you already have accounts with may check your credit periodically to extend new offers on your account or update your contact and employer information. Soft inquiries do not affect your credit score and cannot be seen by new lenders who view your credit report.
Hard Inquiries
Hard inquiries are initiated by you when you authorize a new lender to access your credit information in connection with a new credit card, mortgage, auto loan or similar application. Hard inquiries are the credit pulls that affect your overall credit score and remain visible to new lenders and viewers of your credit report. Limit the number of hard credit inquiries on your credit report by turning down in-store credit offers and applying for new credit cards responsibly.
Effect on Score
Although hard inquiries affect your credit score, the effect on your score is not extremely significant. Single hard inquiries affect your score less than five points per hit. However, if you submit multiple applications within the same period, you may experience a significant drop in score. For example, if you submit five credit card applications in one week, your score could drop 25 points. Your score is affected regardless of whether your application for credit is approved or denied. In addition to the impact points, lenders may base new credit decisions based on the number of recent inquiries you make. If you make many inquiries and are not granted credit by the companies you apply with, new lenders may see you as a credit risk because other lenders did not approve your application. Also, multiple credit applications within a short time makes you appear desperate for credit, which lenders view as an additional risk.
Time on Report
Credit inquiries made on your report stay on file for one to two years. Each of the three credit reporting bureaus uses the FICO scoring system. Under the FICO system, the effect of a hard credit pull is not factored into your overall score after one year. Because of this, some credit bureaus may remove the inquiry automatically after a year. However, the credit bureau may report the inquiry for up to two years. If you have an inquiry on your report that is older than one year, the entry does not affect your score and may not contribute to new lender decisions.
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