Whenever your credit report is accessed, each credit reporting company will note what’s referred to as a “credit inquiry” in the credit file it maintains about you. The inquiry is a record of who pulled your credit report, and on what date. And while there are thousands of different entities that could possibly pull your credit reports, there are only two categories of inquiries: hard and soft.
A hard inquiry is a record of a company pulling your credit report in response to you applying for a credit product, like a mortgage loan or a credit card. So, the next time you fill out an application for a loan or credit card from a bank, credit card issuer or credit union, a hard inquiry will appear in your credit file if the lender obtains a copy of your credit report. Hard inquiries are seen and considered by credit scoring models and can lower your credit scores, although not always.
A soft inquiry is a record of a company accessing your credit report under a variety of scenarios that don’t involve loan underwriting. For example, if the credit bureaus provide your name and address to a credit card issuer that wants to offer you credit, that’s considered a soft inquiry. Or, if one of your existing creditors pulls your credit report as part of its ongoing account management practices, that’s also considered a soft inquiry. An increasingly common (and important) type of soft inquiry occurs when you pull your own credit report, as a means to check its accuracy and monitor your credit health. Soft inquiries are ignored by credit scoring models such as the VantageScore model, which means they do not impact or otherwise lower your credit scores.
The influence of a credit inquiry is going to be either minor or neutral on your credit scores. In the VantageScore credit scoring system, credit inquiries are considered to be less influential than other credit behaviors, such as payment history. And despite the fact that inquiries can remain in your credit report as long as two years, a credit score that’s lowered by a hard inquiry generally will increase back to its pre-inquiry level in just a few months – provided no new negative information is added to your credit files.
Still, that doesn’t mean you should ignore the potential impact of inquiries. For consumers who have marginal credit scores, every score point is important and can be the difference between an approval and a denial of credit. And even if you’re eventually approved, a lower score can cost you thousands in added interest due to higher rates.
The important news is that you have ultimate control over the number of inquiries that appear on your credit reports. The only type of inquiry that can lower your credit scores is the type that you cause when you apply for credit.
Understanding this lets you be strategic when you shop for loans. For starters, you absolutely should shop around when applying for credit, to look for the best interest rates, down payment requirements, and other terms you can get. When doing so, submit your applications at roughly the same time, and compare the terms you’re offered before choosing which loan to take. The VantageScore model treats multiple hard inquiries by utility companies, as well as those made in connection with mortgage and auto loans, as one inquiry, provided they are made within a rolling two-week window. That way, they only impact your credit score once. Other scoring models also have accommodations that allow for this kind of rate shopping.
In addition, if you know you’ll be seeking a loan at a particular point in time, avoid activities in the months leading up to it that will cause hard inquiries – and the resultant dip in your credit score. For example, if you’ll be seeking a mortgage in the spring, it’s probably wise to avoid applying for a credit card during the preceding holiday season. Giving your score 3-4 months to rebound between hard inquiries means your most favorable score will be considered each time you apply for credit.