How a Hard Inquiry Can Affect Your Credit Score

When you apply for new credit, lenders perform a hard inquiry on your report. This action can temporarily dip your credit score, signaling increased risk to other potential lenders.

1. The process begins when you formally apply for a new line of credit, such as a mortgage, auto loan, or credit card, giving the lender permission to review your credit history.
2. The lender then pulls your credit report from one of the major credit bureaus. This official request is logged on your report as a hard inquiry.
3. Credit scoring models, like FICO and VantageScore, register this inquiry. A new inquiry can suggest you are taking on more debt, which may result in a minor, temporary drop in your score.
4. To allow for rate shopping, multiple inquiries for a specific type of loan (like a mortgage or auto loan) made within a short time frame are typically treated as a single inquiry.
5. While the inquiry remains on your credit report for two years, its impact on your score usually fades within a few months and is generally negligible after one year.

How Much Will a Hard Inquiry Affect Your Credit Score?

The exact impact of a hard inquiry varies, but several key factors determine how many points your score might drop. Consider the following points:

• Your existing credit profile: A strong credit history can minimize the impact of a single inquiry. Those with few accounts or a shorter history may see a more significant drop.
• Number of recent inquiries: Lenders often see multiple applications in a short period as risky behavior. This can lead to a more substantial score decrease than an isolated inquiry would.
• Time: The impact of a hard inquiry lessens over time. While it stays on your report for two years, its effect on your score typically diminishes much sooner.

How You Can Avoid a Hard Inquiry Affecting Your Credit Score

Shop for Rates in a Short Timeframe

Credit scoring models often treat multiple inquiries for the same loan type, like a mortgage or auto loan, as a single event. By submitting all your applications within a 14 to 45-day window, you can minimize the impact on your credit score while rate shopping.

Seek Prequalification or Pre-Approval

Many lenders offer prequalification, which typically results in a soft inquiry that doesn't affect your score. This process gives you an estimate of the loan amount and terms you might receive, allowing you to assess your options before committing to a formal application.

Choose the Right Card to A Hard Inquiry

No matter your current standing, improving your credit score is an achievable goal through consistent, positive financial habits. Meaningful changes can often be seen within just a few months by taking the right steps.

• Set up automatic payments. Your payment history is the most significant factor in your score, so ensuring bills are paid on time is the most important step you can take.
• Reduce your credit utilization. Aim to use less than 30% of your available credit, as this ratio is the second most important factor in your score calculation.
• Monitor your credit reports. Regularly check your reports from Experian, TransUnion, and Equifax to catch and dispute any errors or signs of fraud.
• Become an authorized user. Being added to an account with a long history of on-time payments and low utilization can help boost your own score.
• Limit hard inquiries. Avoid applying for too much new credit in a short period, as multiple hard inquiries can temporarily lower your score.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as credit cards and installment loans.

The Bottom Line

A hard inquiry can temporarily lower your credit score, but the impact is usually minor and short-lived. Multiple inquiries for the same type of loan are often treated as a single event.

Frequently Asked Questions

How long do hard inquiries stay on your credit report?

Hard inquiries typically remain on your credit report for two years, but their impact on your credit score usually diminishes significantly after the first year.

Can I remove a hard inquiry from my credit report?

You can only dispute and remove unauthorized hard inquiries. If you legitimately applied for credit, the inquiry is accurate and cannot be removed from your report.

Do all credit applications result in a hard inquiry?

Not always. Checking for pre-qualified offers usually results in a soft inquiry, which doesn't affect your score. A hard inquiry only occurs with a formal application.