How Many Points Does a Hard Inquiry Affect?
Short answer
A hard inquiry typically lowers your credit score by about 5 points or less, but the exact impact depends on your unique credit history. This small dip usually lasts about one year before fading, although the inquiry remains on your report for two years. Knowing this helps you apply for credit wisely to protect your score.
What Is a Hard Inquiry in Plain Words?
A hard inquiry occurs when a lender or creditor requests to see your credit report as part of a decision to lend you money or extend credit. For instance, if you apply for a credit card, a personal loan, or a mortgage, the lender will perform a hard inquiry to check your creditworthiness. This is different from a soft inquiry, such as when you check your own credit or when a company pre-approves you for an offer, which does not affect your credit score.
Hard inquiries are recorded on your credit report and visible to other lenders, signaling that you are actively seeking credit. This is why hard inquiries can impact your credit score slightly. Think of it as a “credit check” that lenders do to decide whether to approve your application and what interest rate to offer.
Example:
Imagine you apply for a new credit card. The card issuer asks for your credit report and performs a hard inquiry. This inquiry is noted on your credit report and can cause your credit score to drop a few points temporarily.
How Does a Hard Inquiry Affect Your Credit Score?
The impact of a hard inquiry varies but generally causes a small drop in your credit score, often around 5 points or less. For example, if your credit score is 700, a hard inquiry might lower it to approximately 695. However, this is not a fixed amount because credit scoring models consider many factors, including your overall credit history, number of accounts, and recent activity.
People with limited credit history or fewer accounts may see a larger point drop, while those with established credit may barely notice a change. This is because scoring models weigh inquiries alongside other factors like payment history and credit utilization.
The effect of a hard inquiry is temporary, lasting about 12 months, after which it no longer impacts your credit score. However, the inquiry itself stays on your credit report for up to two years and can be seen by lenders during that time.
Worked Example:
If you have a credit score of 720 and apply for a car loan, the hard inquiry from the lender might cause your score to drop to 715. Over the next year, as you make on-time payments and keep balances low, your score can recover even with the inquiry still on your report.
Why Does a Hard Inquiry Matter for Your Credit?
Hard inquiries matter because they provide lenders with evidence that you are actively seeking credit. Multiple hard inquiries within a short period may suggest financial stress or increased risk to lenders, potentially lowering your chances of approval or resulting in higher interest rates.
For example, applying for several credit cards or loans within weeks can generate multiple hard inquiries. If you apply for five credit cards in one month, each issuer will perform a hard inquiry, which could collectively reduce your score noticeably and make lenders wary.
Being aware of how inquiries affect your credit score helps you plan when to apply for credit. Spacing out applications and limiting hard inquiries can keep your credit score stronger, saving you money in the form of better interest rates and loan terms.
Tips to Manage Hard Inquiries:
- Only apply for credit you truly need.
- Avoid applying for multiple credit cards or loans simultaneously.
- Check your credit report regularly to monitor inquiries and spot unauthorized checks.
What Are Related Terms People Often Confuse with Hard Inquiries?
Several terms related to credit checks are often mixed up with hard inquiries. Understanding the differences is key to managing your credit effectively.
- Soft Inquiry: This occurs when you check your own credit report or when a company performs a background check, such as a pre-approval offer. Soft inquiries do not affect your credit score and are visible only to you on your report.
- Hard Inquiry: Happens when you apply for credit and a lender reviews your credit report to decide on lending. These can lower your credit score slightly and remain on your report for two years.
- Credit Check: A general term that can mean either a hard or soft inquiry depending on the context. Clarify which type is meant to understand the effect on your credit.
Example Confusion:
Sometimes, people worry that checking their own credit lowers their score. This is incorrect because checking your own credit is a soft inquiry and has no impact on your score.
How Long Does a Hard Inquiry Stay on Your Credit Report and Affect Your Score?
Hard inquiries appear on your credit report for about two years. Lenders can see them during this entire period when reviewing your credit history. However, the scoring models only consider hard inquiries for about 12 months when calculating your credit score.
This means that even though a hard inquiry is visible for two years, its impact on your score fades after one year. After 12 months, the inquiry no longer reduces your credit score but remains as part of your credit history.
Why This Matters:
If you applied for multiple loans or credit cards over a year ago, those inquiries no longer weigh down your score, even though they still show up on your report. Knowing this can help you understand score fluctuations and timing for new applications.
What Should You Do After a Hard Inquiry?
After a hard inquiry, it’s wise to check your credit report to confirm that the inquiry was authorized and accurate. You can get a free credit report every 12 months from AnnualCreditReport.com. If you find an inquiry you don’t recognize, it could be a sign of identity theft or error.
Steps to Take:
- Obtain your credit reports from the three major bureaus: Experian, TransUnion, and Equifax.
- Look for any hard inquiries you did not authorize.
- If you find unauthorized inquiries, contact the credit bureau to dispute them and consider placing a fraud alert on your report.
- Maintain good credit habits like paying bills on time, keeping balances low, and avoiding unnecessary credit applications to improve your score.
Checking your credit regularly helps you stay on top of your financial health and catch mistakes early.
How Can You Minimize the Impact of Multiple Hard Inquiries?
When shopping for certain types of loans, like mortgages, auto loans, or student loans, multiple hard inquiries within a specific time frame are often treated as a single inquiry by credit scoring models. This “rate shopping” window usually lasts from 14 to 45 days depending on the scoring formula.
How to Use This to Your Advantage:
- Plan to apply for loans within a focused timeframe to minimize score impact.
- Avoid applying for other types of credit outside this window.
- Keep track of when you submit credit applications to ensure they fall within the rate shopping period.
Example:
If you apply for three auto loans within two weeks, scoring models often count those as one inquiry. But applying for a credit card during the same time would count as a separate inquiry and could add to the score drop.
By timing your applications strategically, you limit the damage multiple inquiries can cause.
When Should You Contact a Professional About Hard Inquiries?
If you notice hard inquiries you did not authorize or your credit score drops unexpectedly, you may want to seek help. Contact a credit counselor for advice on managing your credit, or reach out to legal aid if you suspect identity theft.
The Consumer Financial Protection Bureau offers resources to help consumers understand credit reports and resolve errors. You can also file disputes with credit bureaus to remove incorrect inquiries.
What to Do:
- Monitor your credit regularly.
- Report any suspicious inquiries immediately.
- Get help if you feel overwhelmed or unsure how to handle credit issues.
Taking these steps protects your credit and financial well-being.
Frequently asked questions
Can a hard inquiry cause a big drop in my credit score?
Usually, a hard inquiry causes only a small drop (around 5 points or less). People with limited credit history may see a slightly larger impact, but good credit habits typically offset this quickly.
How many hard inquiries are too many?
More than two or three hard inquiries in six months for unrelated credit can raise concerns for lenders and lower your score, while multiple inquiries for the same type of loan within a short window may count as one.
Do all credit scoring models treat hard inquiries the same?
No. Some models ignore hard inquiries after 30 days, and others consider them for up to a year. It depends on the scoring formula used.
Can I remove a legitimate hard inquiry from my credit report?
Legitimate hard inquiries stay on your report for two years and cannot be removed before then. You can dispute only unauthorized or fraudulent inquiries.
Does checking my own credit lower my score?
No. Checking your own credit is a soft inquiry and does not affect your credit score.