Credit Report Inquiries And How They Impact Your Credit Score
It’s always a smart idea to check your credit report frequently to ensure all the information is correct. Knowing how credit report inquiries impact your credit report is important for financial success.
Check your Credit:
The first step in this process is to check your credit score and view your credit reports. If your score is lower than you thought and the reports show erroneous information, such as a misspelled name or an inquiry you don’t recognize, it’s time to take action.
Fixing these mistakes may include dispute letters and complicated online systems, therefore, it’s recommended to work with a professional who is familiar with the process of how to dispute your credit report.
Fair Credit Reporting Act:
The Fair Credit Reporting Act (FCRA) is a federal law to ensure the accuracy, fairness, and privacy of your information in the consumer credit bureau files. At your request, credit bureaus will initiate an investigation of any credit information that you challenge. The Fair Credit Reporting Act gives you the right to repair your credit, but it doesn’t do the job for you, hence the need to work with experts.
The Difference Between Hard and Soft Inquiries:
The main difference between hard and soft inquiries on your credit report is who is requesting permission to pull this information from the credit bureaus. Let’s dig in deeper to understand the difference, as well as how credit report inquiries impact your credit report.
- Occurs when you apply for a new line of credit, i.e. credit card or loan
- Lenders will view your credit history on your credit report to ensure you’ll be a qualified borrower
- Referred to as “hard pull”, your information should never be pulled without your permission
- Cannot be removed unless identity theft is involved
- Will remain on your credit report for about two years
- Only impacts your credit score for less than a year
When you’re seeking a new credit card, you’re essentially giving permission for that lender to view your credit history so they can investigate if you’re a good candidate to borrow money from them.
If you’re seeking a loan and there are several inquiries within a 14-45 day period, you most likely will not get penalized. The bureaus realize you’ll want to compare multiple loan options from various companies.
However, if you’re applying for multiple credit cards in one week, the bureaus will take notice. You may be viewed as someone who doesn’t have enough money, therefore is planning on spreading out their spending on multiple credit cards with a low chance of paying them back.
Hard inquiry removals can take a lot of effort and can only be removed when fraud is involved. If someone is attempting to open up credit card accounts or a loan in your name, you’ll want to take action right away.
If you’re wondering how many points does a hard inquiry affect your credit score, the answer varies per person. Based on your payment history, among other factors, typically, the number is lower than five points.
How to Avoid Hard Pulls
- Don’t apply to credit cards you don’t need
- Do your homework and figure out which credit card/s make sense for you before applying
- Conduct your rate shopping for things like an auto loan or mortgage within a short amount of time
- You can freeze your credit reports, cutting off access to new inquiries and avoiding future fraud on existing accounts
- Occurs when you pull your own credit to check your credit score
- Generally pulled without knowledge or permission aside from your own pull
- Known as “soft pulls”, companies can inquire about your credit history, whether it’s an employer or someone looking to do a background check
- An existing credit card company may want to check up on your report to ensure you’re still a qualified borrower
- Credit card companies may pre-screen you for eligible offers based on specific criteria
- Soft inquiries don’t affect your credit score
Even though soft inquiries don’t have any impact on your credit score, you should always be checking in on your report from the bureaus to ensure all the information on there is valid.
Before you consider opening up a new credit card or applying for a loan, know that there are consequences to doing so. Credit report inquiries impact your credit report in various ways, especially hard pulls, so make sure it’s absolutely necessary. As always, it’s important to pay your credit card bills and loans ontime to avoid additional damage to your credit score.
If you’re not sure how to evaluate your credit report to ensure all of the inquiries on it should be present or to dispute those that are foreign to you, speak to a professional credit repair company who can quickly help you navigate through the credit report waters.