Credit Inquiries and Your Credit Score: What You Need to Know

When you apply for credit, lenders will often check your credit report to assess your creditworthiness. This is known as a credit inquiry. While credit inquiries are a necessary part of the lending process, they can have an impact on your credit score. In this article, we’ll explore the different types of credit inquiries and how they can affect your credit score.

Types of Credit Inquiries

Types of Credit Inquiries

There are two types of credit inquiries: hard inquiries and soft inquiries.

  • Hard inquiries: These are inquiries that occur when you apply for credit, such as a credit card, personal loan, or mortgage. Hard inquiries can impact your credit score because they suggest that you are actively looking for credit and may be taking on more debt.
  • Soft inquiries: These are inquiries that occur when you or someone else checks your credit report for non-lending purposes, such as a background check or pre-approved credit offer. Soft inquiries do not impact your credit score.

How Credit Inquiries Affect Your Credit Score

Hard inquiries can have a negative impact on your credit score, but the impact is usually minor and temporary. According to FICO, hard inquiries typically only lower your credit score by a few points and will remain on your credit report for two years. However, if you have multiple hard inquiries within a short period of time, it can suggest that you are a higher credit risk and can have a more significant impact on your credit score.

It’s important to note that not all hard inquiries are created equal. For example, if you’re shopping around for a mortgage or auto loan, multiple inquiries within a 14-45 day period (depending on the credit scoring model) will be treated as a single inquiry. This is known as rate shopping and is designed to allow consumers to compare rates without being penalized for multiple inquiries.

How to Minimize the Impact of Credit Inquiries

If you’re concerned about the impact of credit inquiries on your credit score, there are a few things you can do to minimize their impact:

  • Be selective when applying for credit: Only apply for credit when you need it and are confident that you’ll be approved.
  • Space out your credit applications: If you’re planning to apply for multiple types of credit, such as a credit card and a personal loan, space out your applications by a few months to avoid multiple inquiries within a short period of time.
  • Monitor your credit report: Regularly check your credit report to ensure that there are no errors or fraudulent inquiries.

By being mindful of your credit inquiries and taking steps to minimize their impact, you can help protect your credit score and improve your overall creditworthiness.