How Many Points Does a Hard Inquiry Affect Your Credit Score?

What is an Inquiry?

When you apply for a mortgage, auto or student loan, credit card, or any other form of credit, the lender has the legal right to check your credit. Your credit scores are used by lenders to decide how much of a risk you pose. The higher your score, the less likely you’ll have trouble paying back your debt and the easier it is for a lender to say “yes.”

By law, credit reporting agencies must tell you every time someone checks your credit. That credit check (whether they pull a credit report, credit score, or both) is listed under the “inquiries” section of your credit report. It lists the day the credit report was accessed, and the name of the company that obtained it.

Inquiries are grouped by type, indicating whether the inquiry was for an auto loan, credit card or mortgage, for example. That identification is key to whether or not the inquiry will be a “hard” inquiry or not. 

Hard Inquiries Vs. Soft Inquiries

Any inquiry that may impact your credit scores is known as a “hard” inquiry. These inquiries are shown to others who order your credit reports. 

Other inquiries are only shown to you when you order your own credit reports. They are not used when credit scores are calculated. They are called “soft inquiries.” Soft inquiries include credit checks by: 

  • Employers
  • Insurance companies
  • Yourself

You know all those pre-approved offers you get in the mail? Those also result in soft inquiries.

Tip: When you review your credit reports, keep in mind the name of the company listed may be different than the name of the company where you applied. That’s because the lender may do business under another name. 

Video

What a credit card issuer or lender thinks when they see a hard inquiry on your credit report

Hard inquiries fall under the "less influential" category when calculating credit scores using the VantageScore model, and they make up only 10% of a FICO score calculation. But they play a big part when it comes to credit card issuers and lenders assessing your potential risk.

Lenders pull your credit report to see how credit worthy you are, but finding a bunch of inquiries on your credit report will show them you may be financially stressed and a bigger risk for borrowing in the future. 

According to FICO, "Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports."

But while these hard inquiries do show risk, lenders also consider other factors when making approval decisions, such as your income and payment history. 

What Is a Hard Credit Pull?

A “hard” credit inquiry, or pull, is when a lender or company requests to review your credit report. This inquiry itself becomes noted on your credit report and remains there for up to 2 years. Hard pulls often lower your credit score but not by a huge amount.

“When you apply for a credit card or any other type of loan (a mortgage, auto loan), you give the issuer or lender permission to check your credit report to assess your ‘creditworthiness,’” notes CNBC contributor Elizabeth Gravier. “In essence, your potential lender is looking to see how likely you are to pay back the money you borrowed. The healthier credit history you have, the less risk you demonstrate, and the greater the likelihood you’ll qualify for that new credit card or loan.”

While you don’t need to totally avoid hard inquiries, you should be aware that they appear in your credit history.

How to Reduce the Impact of Hard Inquiries on Your Credit

Hard inquiries on their own generally aren’t enough to significantly reduce your score in a lasting way. This is especially true for those who have a positive credit history. In most cases, hard inquiries result in a temporary credit score drop that rebounds within a few months.

Improving your credit score is one of the best ways to cushion the blow of hard inquiries. To do this, focus your attention on the following areas:

  • Always make on-time payments across all your accounts.
  • Pay down your debt and keep your credit utilization ratio below 30%; the lower, the better.
  • Pay off any past-due accounts, including collections or charge-offs.
  • Periodically check your credit report and credit score and pay close attention to the risk factors included with your score.
  • Apply for credit only when you need it.

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How Many Hard Credit Inquiries Is Too Many?

The impact that multiple inquiries will have on your credit will vary based on each person’s unique credit history.

Ultimately, it is up to the lender to decide how many inquiries are too many.

Each lender typically has a limit of how many inquiries are acceptable. After that, they will not approve you, no matter what your credit score is.

For many lenders, six inquiries are too many to be approved for a loan or bank card.

Even if you have multiple hard inquiries on your report in a short period of time, you may be spared negative consequences if you are shopping for a specific type of loan.

If you are shopping for the best rate for a single type of credit account, such as a car loan or a mortgage, these will typically only count as a single inquiry.

This means that the impact on your credit score will be minimal.

If you are trying to open multiple credit accounts in a short period of time, this will register as multiple inquiries and jeopardize your chances of approval later on.

This indicates that you make decisions about your credit hastily, which indicates a higher risk.

Does Your Credit Score Go Up When a Hard Inquiry Drops Off?

If a hard pull decreased your credit score, the inquiry will have no effect after a year. Assuming the rest of your credit report is solid, any negative effect a hard inquiry had on your score will likely go away in a few months.

How Many Points Does a Hard Inquiry Affect Your Credit Score?

In general, hard inquiries don’t have as much of an impact on your credit score as other credit factors. Credit inquiries are only responsible for 10% of your credit score while your payment history makes up 35% of your score.

For most people, according to FICO, a new hard credit inquiry will only drop your credit score between one and five points. While a hard inquiry stays on your credit report for two years, it only impacts your score for one year.

It’s important to note that these inquiries can stack up. For example, if you get a new mobile phone and service plan in January and then apply for a new credit card in February, you may see a bigger hit to your credit score than just five points due to multiple hard inquiries.

However, there is a way around racking up multiple hard inquiries if you’re rate shopping for a loan or mortgage. Here’s how.

How to dispute hard credit inquiries

We recommend checking your credit reports often. If you spot any errors, such as a hard inquiry that occurred without your permission, consider disputing it with the credit bureau. You may also contact the Consumer Financial Protection Bureau, or CFPB, for further assistance.

This could be a sign of identity theft, according to Experian, one of the three major credit bureaus. At the very least, you’ll want to look into it and understand what’s going on.

Keep in mind, you can only dispute hard inquiries that occur without your permission. If you’ve authorized a hard inquiry, it generally takes two years to fall off your credit reports.

How many points will a hard inquiry impact your credit score?

A hard credit inquiry could lower your credit score by as much as 10 points, though in many cases the damage probably won’t be that significant. As FICO explains: “For most people, one additional credit inquiry will take less than five points off their FICO Scores.”

FICO also reports that hard credit inquiries can remain on your credit report for up to two years—but when FICO calculates your credit score, it only considers credit inquiries made in the past 12 months. This means that if your credit inquiry is over a year old, it will no longer affect your FICO credit score.

How Rate Shopping Affects Your Credit Score

The FICO score ignores all mortgage and auto inquiries made in the 30 days before scoring. If you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.

The credit-scoring model recognizes that many consumers shop around for the best interest rates before purchasing a car or home, and that their searching may cause multiple lenders to request their credit report. To compensate for this, multiple auto or mortgage inquiries in any 14-day period are counted as just one inquiry.

“In the newest formula used to calculate FICO scores, that 14-day period has been expanded to any 45-day period,” Watt said.

This means consumers can shop around for an auto loan for up to 45 days without affecting their scores.

If you’re wondering how to get the most bang for your buck while rate shopping, a nonprofit credit counselor can help walk you through the process. The advice is free and can save you from committing a costly error while perusing over various rates.

To sum things up, soft inquiries have no effect on your credit score. They happen all the time without your knowledge, so don’t worry about them. A single hard inquiry will go mostly unnoticed by the credit bureaus. Any “damage” done will mend itself in a couple months.

However, if you make too many hard inquiries in a short enough period of time, your credit score will plummet.

What Is a Credit Inquiry?

Anytime someone checks your credit report including yourself, lenders, banks or even landlords, it’s recorded on your report as a soft or hard credit inquiry.

Each of the three credit bureaus—Equifax, Experian and TransUnion—keep track of the inquiries on your report because it can say a lot about the risk you pose to lenders. While lenders aren’t too worried about soft inquiries because it doesn’t impact your credit score, they do take caution around hard inquiries. In the lender’s eye, multiple hard inquiries can indicate you’re taking on more credit than you may be able to afford.

For example, according to FICO, “People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy.”

Should You Be Worried About Hard Inquiries?

If this question – How much does a hard inquiry affect credit? – still wakes you up at night, you should know that hard credit inquiries account for the smallest percentage of your overall credit report. In the FICO scoring model, only 10% of your credit score is reserved for hard pulls. In most cases, it’s less than 10%. VantageScore is also flexible when it comes to hard inquiries. Altogether, they are not an essential category in the total score.

Of course, it doesn’t mean you should be less cautious with hard inquiries. Multiple hard inquiries in a short period can impair your credit. If you’ve just got a personal loan and plan to apply for a mortgage, expect another hard inquiry. The points on your credit score will drop for a few more, and you might have difficulties qualifying for better rates. To avoid this situation, you might consider applying to lenders who offer loans without hard credit checks.

New credit inquiries can raise red flags for lenders

What creditors like to see are consumers who pay their bills on time. They also like to see low credit usage relative to your credit limits (under 25% is good; under 10% is great). These two areas – payment history and credit utilization – make up 65% of a person’s credit score.

The remaining 35% is the length of credit history at 15%, credit mix (like credit cards and installment loans) at 10%, and finally new credit (those pesky hard inquiries) at 10%. Why should the 10% from new credit and inquiries make that much difference to a would-be creditor? 

It’s because a hard inquiry injects an amount of uncertainty in your file. Why did you apply for new credit? Are you going to max out the new credit line? Is the new credit a sign of instability? These are all potential red flags for a lender.

When the credit scoring elves at FICO and VantageScore look at this new activity on your file, their historical algorithms tell them that a certain percentage of people really do max out their new lines and some even go into default in a year or two. So, until you demonstrate (to their models) that you are a still wise credit user, your score declines. This drop is more pronounced in a file with less credit history.

This is especially true if several inquiries are made in a relatively short period of time. If a creditor sees a bunch of new accounts in a potential customer’s credit report, alarm bells are going to sound.

In my first book, “Credit Repair Kit for Dummies,” I point out that one inquiry may have no effect on your score at all and, in general, only takes five points or less off a mature score. But lots of inquiries can signal greater risk to the creditors.

Page 120 of that book lays it out this way: “For example, industry statistics show that six inquiries or more on your credit report means that you may be eight times more likely to declare bankruptcy than if you had no inquiries on your report.”

FICO only counts inquiries over the past 12 months in its scoring matrix, even though the inquiries stay on your credit report for two years. So we are talking about a bunch of new accounts in a 12-month-or-less period. Risk is what it’s all about for the creditors, and analyzing what kind of profit or loss a potential customer poses is why hard inquiries can bring your score down.

Also, most credit scores that drop due to inquiries will bounce back after a few months of good credit behavior by the consumer. Keep in mind that if it’s only one or two inquiries and the credit is granted, the increase in available credit could balance out any points lost due to the inquiry.

But for anyone contemplating a mortgage or other large credit purchase, my advice is to put any plans to apply for new credit on hold until after any credit reports for a mortgage loan are in your rearview mirror.

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