It’s smart to check your three credit reports and to do so often. Yet there’s a difference between checking your own reports with Equifax, TransUnion and Experian and allowing someone else to access your credit information. One type of credit check—a hard inquiry—could hurt your credit scores. The other—a soft inquiry—won’t affect those important numbers at all.
What Is a Credit Inquiry?
The term credit inquiry describes what happens when someone requests and receives your credit information. Step one of the process involves some party sending a request for information, or an “inquiry,” to one of the three credit bureaus. Next, the credit bureau can share your credit report if the person or company making the request has a legal right to ask for it. The exception here is if you’ve placed a credit freeze on your data.
Federal law gives you the right to know who has accessed your credit information. A credit reporting agency must record each credit inquiry (aka credit check or credit pull) in your credit file. Most credit inquiries stay on your credit report for two years as a matter of policy.
Hard Vs. Soft Credit Check
Some credit checks are known as “hard,” while others are “soft.” The difference between the two terms has to do with how each type of inquiry may impact your credit scores.
Hard Credit Check
A hard credit check or inquiry usually takes place when you apply for something. When a hard inquiry shows up on your credit report, there’s a chance it could lower your credit score.
The following types of credit checks are examples of hard inquiries.
- Loan applications (mortgage, auto, student, personal, etc.)
- Credit card applications
- Requests for credit limit increases
- Applications for lines of credit
- New utility applications
- Apartment rental applications
- Collection agency skip tracing
Soft Credit Check
Soft credit inquiries have no impact on your credit score. If a lender checks your credit report, soft credit inquiries won’t show up at all. Soft inquiries are only visible on consumer disclosures—credit reports that you request personally.
The following types of credit checks are examples of soft inquiries.
- Personal credit checks
- Pre-approved credit offers
- Insurance applications
- Account reviews by current creditors
- Employment applications
Hard Credit Checks and Your Credit Scores
Why Hard Inquiries Matter
When a lender pulls your credit report, there’s a potential for your credit score to decline. The reason why comes down to simple math. Statistics show that consumers who apply for new credit are riskier compared with consumers who do not.
According to FICO, consumers with five or more credit inquiries in the past 12 months are six times more likely to become 90+ days past due on a credit obligation than consumers with zero inquiries. People with six or more credit inquiries may be eight times more likely to file bankruptcy compared with zero-inquiry consumers.
Lenders and other companies use credit scores to help predict the risk of doing business with you. Both FICO and VantageScore credit scores predict the likelihood that a consumer will default (aka become 90+ days late) on any credit obligation within the next 24 months.
If something on your credit report shows you’re more likely to default on a credit obligation, your score could decline. This is true of hard credit inquiries and any other actions that increase your credit risk, such as high credit card utilization, late payments and other derogatory credit information.
How Many Points Will a Hard Inquiry Cost You?
According to FICO, one new inquiry will generally lower a credit score by less than five points. As that inquiry grows older, the impact on your score should be less until it no longer counts at all. Of course, the real credit scoring process is a bit more complicated when you break it down.
Hard credit inquiries don’t count toward your credit score calculation nearly as much as other factors. With FICO scoring models, for example, credit inquiries influence 10% of your credit score. By comparison, your payment history is worth 35% of your FICO Score. Hard inquiries matter even less under VantageScore credit scoring models. VantageScore calculates just 5% of your score based on hard inquiries.
Individual credit inquiries don’t have a specific point value across the board. For example, you can’t say that a new hard inquiry will lower your credit score five points. That’s not how credit scoring works.
Instead, a credit scoring model considers the total number of inquiries that appear on your credit report along with the age of those inquiries. The rest of your credit information matters too. A new hard inquiry might have a bigger score impact for people with little credit history versus those with older, more established credit reports.
How Long Do Inquiries Stay On Your Credit?
Most credit reporting is voluntary. For example, credit card issuers aren’t legally required to share customer information with the credit bureaus. The credit bureaus aren’t required to include credit card accounts on credit reports, either. Account information is reported and included in credit reports because it helps the companies involved boost their bottom lines.
Inquiries are different. The credit bureaus are required by law to disclose when they give anyone access to your credit information. According to the Fair Credit Reporting Act (FCRA), most inquiries must stay on your credit report for at least 12 months. Employment inquiries have to remain on your credit report for 24 months.
Typically, the credit reporting agencies opt to keep inquiries on your credit reports for two years. Yet FICO only considers hard inquiries that occurred in the last year. Once a hard inquiry is older than a year, it has zero influence on your FICO Score.
VantageScore once again is more lenient where inquiries are concerned. If a hard inquiry lowers your VantageScore credit score, it will generally rebound in three to four months (provided no new negative information appears on your credit report).
The Rate Shopping Exception
As mentioned, some hard inquiries might harm your credit score. Frequent credit applications indicate higher risk and could be a sign that you’re in financial distress. Rate shopping, however, is an exception to the rule.
When you take the time to search for the best interest rate before taking out a new loan it shows financial responsibility, not higher risk. Because rate shopping doesn’t indicate that you’re more likely to default, FICO and VantageScore both include special logic in their credit scoring models that treats these types of inquiries differently.
This special logic is known as deduplication. Here’s a look at how it works.
- 45-Day Safe Harbor Period: FICO considers all student loan, auto loan, and mortgage inquiries as one hard inquiry, as long as they occur within a 45-day window. Older versions of FICO scoring models (which some lenders still use) feature a 14-day window instead.
- 14-Day Safe Harbor Period: VantageScore treats all inquiries that take place within a 14-day window as one inquiry, regardless of the application type.
It’s wise to review your three credit reports regularly. Reviewing your credit can help you to monitor for fraud and credit reporting mistakes that might lower your credit scores. Thanks to the FCRA, you can claim a free copy of all three credit reports once every 12 months from AnnualCreditReport.com.
When you review one of your credit reports, you should look for errors and fraudulent information. This includes searching for credit inquiries that took place without your permission. If you discover unauthorized credit inquiries, you have the right to dispute them with the credit bureaus. This guide from the Federal Trade Commission may help you navigate the process.
Inquiries you don’t recognize might indicate a bigger problem than a simple credit reporting error. Unauthorized credit inquiries could be a sign of identity theft. If you discover any suspicious inquiries on a credit report, review the rest of your credit information carefully for any other indications of fraud. Visit IdentityTheft.gov for help reporting and recovering from identity theft if you’re a victim of this crime.
Hard credit inquiries generally have a minor impact on your credit scores, if any. Yet, just because credit inquiries are less influential compared with other credit scoring factors doesn’t mean they don’t matter.
You don’t have to worry about checking your own credit. These soft credit checks will never hurt your credit score. But it is wise to limit hard credit checks whenever you can.
The occasional credit application will probably have little impact on your credit score. Responsible rate shopping for student loans, auto loans or mortgages within a 45-day window is typically fine as well. If you apply for a lot of new accounts in a short timeframe, however, your credit scores might take a turn in the wrong direction, which may require you to build your credit back up.