How your credit score is impacted by hard and soft inquiries

Only when you officially submit an application will it impact your credit score. (iStock)

If you were to check your credit report right now, you'd likely see a list of inquiries. Before you panic about how they might be impacting your credit score, it's important to know that there are two types of credit inquiries — hard and soft — and each impacts your credit score differently.

Here's what you need to know about the different types of credit inquiries and how you can avoid damaging your credit score. You can also check your credit with Credible's partner Experian to see where you stand and determine which areas you can address to improve it.


How are hard and soft credit inquiries different?

With very few exceptions, lenders run a hard inquiry on one or more of your credit reports when you submit a credit application. This can be for a home loan, auto loan, private student loan or credit card. The key is that you must provide permission for the lender to run the credit check.

In contrast, a soft inquiry can occur with or without your permission. For example, if you submit a request to prequalify for a personal loan so you can compare rates, that's a soft inquiry. Also, if a lender runs your credit to send you a pre-approval offer in the mail, that's also a soft inquiry.

Soft inquiries will be listed on your credit reports but they don't impact your credit score in any way because they don't indicate that you're applying for credit.

Even when you check your own credit reports — which you can do through Credible's partner, Experian — that's just a soft inquiry.


How will my credit score be impacted by a hard credit inquiry?

Each new hard inquiry typically knocks fewer than five points off your credit score, according to FICO. And while hard inquiries remain on your credit reports for two years, they'll only affect your FICO score for 12 months.

However, there are some things you should keep in mind.

First, FICO considers hard inquiries differently when you're shopping around for certain loans, including mortgages, auto loans and even student loans. If you apply with multiple lenders so you can compare rates, FICO won't penalize you by counting every single inquiry against you.

Instead, as long as you do it all within a short period of time — typically between 14 and 45 days — the credit scoring company will combine all the inquiries into one for scoring purposes. Note, however, that this doesn't work for credit cards.

Second, while one new credit inquiry won't impact your credit score that much, applying for multiple accounts in a short period can have a compounding negative impact. And this isn't the same as shopping around because you're actually trying to open multiple accounts.

As a result, it's best to avoid applying for multiple credit accounts in a short period.

Finally, hard inquiries may affect your credit score differently if you have a high score versus a low one. If there's a lot of other positive information on your credit report from years of managing credit well, a new credit inquiry may not hurt you much.

You can check your credit via Credible without negatively impacting it to see how inquiries are affecting your score.


The bottom line

Maintaining a good credit score can make a huge difference in your financial situation. It'll make it easier to get approved for credit when you need it and with favorable terms. It can even help you score lower insurance rates.

While you can't remove legitimate hard inquiries from your credit score, try to space out your credit applications to avoid hurting your credit score too much. However, that doesn't apply when you're shopping around within a short period.

Some credit monitoring services will also provide some insight and tools you can use to build your credit. For example, Experian Boost makes it possible to add your utility, phone and streaming service payments, which can help increase your credit score. If you're interested in learning more about credit monitoring, you can visit Credible.


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