Can inquiries hurt my credit?
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Generally, there are many different views about credit reports and many people believe that they are the cause of their bad credit. Therefore, below you will find a detailed explanation on the subject and you will be able to find out for yourself how true this topic could be.
First of all, you should know what a credit inquiry is and how it works: A credit inquiry, also known as a credit check or credit pull, is a request from a company to check your credit report in order to verify the status of your credit report.
There are two different types of credit inquiries: a hard inquiry and a soft inquiry. The type of inquiry depends on the reason for the credit pull and the business making the inquiry.
Hard inquiries generally occur when applying for loans, including mortgages or auto loans and credit cards. So a hard credit inquiry on your credit report means you are actively seeking to obtain new credit, which is seen as risky behavior by lenders.
According to FICO, people with six or more inquiries on their credit files are eight times more likely to file for bankruptcy than people with no inquiries on their credit reports. Horrible, isn’t it?
For this reason, each inquiry can lower your credit score by as much as five points.
The specific number of points an inquiry costs you depends on other factors in your individual credit profile, such as how long it has been since your last inquiry. If you don’t have any other inquiries on your credit report, a hard pull probably won’t affect your score much.
This is going to depend on what else is on your credit profile, it may not even lower your score at all, which may sound quite refreshing to you. Also, it’s important to keep in mind that hard credit inquiries are treated differently depending on the credit scoring model being used.
When people are looking to obtain certain types of loans, such as mortgages, student loans, and auto and credit card loans, they typically apply for loans from multiple lenders so that they can compare interest rates and get the best deal.
Credit scoring models have incorporated several ways to account for this, as it would make no sense to punish consumers for being smart shoppers.
On the other hand there is what is known as a soft inquiry, also known as a soft credit check, which occurs for different reasons.
Unlike hard inquiries, which are conducted by companies that are considering offering new credit for the first time, soft pulls are used by entities that are interested in your credit report for other purposes.
This could include potential employers, landlords pulling your credit as part of a background check, utility providers or insurance providers, for example.
It’s worth mentioning that when you check your own credit report, this is also considered a soft inquiry. Soft credit checks may also be used by companies you already have accounts with, such as your credit card issuers, who routinely review your profile to make sure you remain a creditworthy consumer.
