Every time you apply for credit the credit bureau records an inquiry on your credit report. This lets other lenders know that you’ve recently applied for new credit. Lenders use this information when deciding if you are a good candidate for a new loan.
What are Hard Inquiries?
Don’t confuse hard inquiries with soft inquiries. Hard inquiries only occur when you apply for new credit, such as a credit card or mortgage. They don’t occur when a credit card company sends you a pre-approval or when a potential employer checks your credit. Hard inquiries only occur if new debt could occur from the application.
How Long do Hard Inquiries Stay on Your Credit Report?
Hard inquiries stay on your credit report for up to 24 months. Fortunately, they don’t affect your credit score for the entire two years, though. Typically, you’ll see an effect on your credit score for 12 months or less.
The Effect of Hard Inquiries
Hard inquiries sound like something you should fear, but they don’t damage your credit score that much. Typically, one inquiry knocks five points off your score. That’s not a lot in the grand scheme of things.
Where it can get tricky, though, is if you have more than one hard inquiry in a short amount of time. This is a red flag in the eyes of the lender. Multiple inquiries show that you are desperate for money and keep applying until someone gives you a loan.
There’s one exception to the rule though – shopping around. Let’s say you are shopping lenders because you want the best deal on your mortgage. The credit bureaus understand the importance of shopping around. As long as you get quotes from different lenders within a short time, it will only count as one inquiry. Just make sure you don’t shop for different types of credit within a short period – that would count as multiple inquiries.
Who Do Inquiries Hurt?
As we said above, inquiries only hit you for around five points. For most people, that’s not a big deal. However, if you just started building your credit, five points could be a lot. If you apply for more than one credit type, it could have an even larger effect.
If you are on the border of approval and denial for an applicant, an inquiry can hurt too. For example, if a loan program requires a 650 credit score and you have exactly a 650 before applying for a new credit card, you could lose your loan approval just because of that inquiry.
Fortunately, bouncing back from inquiries is simple. If you stop applying for new credit for a few months, you should see your credit bounce back. Of course, this is only true if you take care of all aspects of your credit, including paying your bills on time and avoiding overextending your credit.
Other Ways to Fix Your Credit Score
If you need the credit and will have other inquiries on your credit report, think of other ways that you can maximize your credit score. The most common ways include:
- Pay your bills on time – Avoid making any payments more than 30 days late. After 30 days, lenders report the late payments to the credit bureaus. They report the late payments in 30-day increments.
- Keep your debts low – Try keeping your outstanding credit card balances at less than 30% of your available balance. Any balances that exceed 30% of the total credit available negatively affect your credit score.
- Don’t close old accounts – You want an ‘old’ credit age. The more established accounts that you have, the older your credit becomes. This helps your credit score because it shows you as an established borrower.
- Watch your credit mix – Try mixing up the types of loans you have. Credit cards, installment loans, and mortgages are the most common types of credit. If you have a credit history heavy in credit card debt, you pose a high risk, as that’s revolving credit. If you have a mix of revolving and installment debt, though, you get a chance to show your ability to repay your debts.
Hard inquiries are a part of applying for new credit. Take all credit applications seriously. Don’t’ just apply because you came across the application. Only apply for the credit that you need and try to spread out your applications to avoid too much damage to your credit score.