A credit score is very sensitive to credit inquiries from third parties. While some inquiries may have no effect on it, others can damage an already low score even further. Every time you respond to a credit card offer or apply for an auto loan, your credit score decreases by several points.
Soft Inquiry
A soft inquiry, also known as a soft pull, comes from existing relationships with creditors and does not make a negative effect on the FICO score. Lenders usually use soft pull for loan pre-approvals. Your own inquiry into your credit report is also a soft inquiry. Potential employers sometimes pull a credit report as a part of background checks.
Hard Pull
A hard credit pull, also called hard inquiry, happens when a lender requests your credit report while establishing a new loan. Some banks conduct a hard pull when you open a deposit account. One hard inquiry will not lower your credit score significantly. However, if you apply for several new credit accounts in a short time, this will decrease your credit score.
Rate Shopping
For larger loans, such as mortgages, vehicle and student loans, you want to shop around to find the best rate. This may result in multiple inquiries from different lenders. These inquiries will not affect your FICO score as long as you find a loan within 30 days. Inquiries for the same type of loans older than 30 days will count as one.
Improving the Score
Making payments on time and keeping credit card balances low are the best ways to improve your FICO score. Resist the temptation to apply for new credit offers. Open new credit only if it is absolutely needed. It will take time to improve your credit score if you have had problems. However, monitoring your credit report and reporting incorrect information promptly will raise the score over time.
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