Credit Inquiries: What They Are and How They Affect Your Credit Score

Introduction

Every time you apply for a loan or credit product, get pre-approved, check if you pre-qualify, or look up your own credit score, a credit inquiry occurs.

However, not all credit inquiries are created equal. Some of those actions will result in a hard inquiry while others only need a soft inquiry. If you’re not sure which is which, you’re about to find out how it all works and what the impact may (or may not) be on your credit score.

What Are Credit Inquiries?

Credit inquiries are requests to a credit bureau for information from a consumer credit report. They’re also known as credit checks or pulls. During a credit inquiry, your latest credit score is generated from the key details on your credit report.

Because your credit reports typically include payment histories and other important data points from a variety of loans and credit cards, a credit inquiry provides valuable insight to the person or business submitting it. Any current or recent loan, mortgage, credit card, or line of credit should be included on your credit report, and therefore incorporated into the results of the credit check.

Of course, this includes both positive and negative line items. So if you’ve missed a bunch of payments or declared bankruptcy, that will show up. And if you always pay all your bills on time, that will also appear. Anyone conducting a credit inquiry is interested in both sides of this equation because it tells the complete story of how big a credit risk you might be.

A soft pull is a peek at the data, which is enough to provide your credit score and an estimation of what credit terms you might qualify for if you apply. A hard pull doesn’t occur until you decide that you want to apply for the credit now. And that’s a deeper look at your latest info, followed by a firm decision one way or the other.

Think of the TV game show “Who Wants To Be a Millionaire?” When a contestant gives an initial answer to a question, that’s like a soft credit check. They’ve scanned their memory banks or used a lifeline to help find the answer, and they’re pretty sure about that response.

Then the host asks, “Is that your final answer?” If the contestant suddenly remembers something important before confirming, they can change their answer at that point. But once they say yes, they lock in their final answer and can’t change it again. That’s the equivalent of doing a hard credit check and making a firm decision based on the latest information.

Before locking in that final answer, it can go either way. Same thing with a soft pull. Just because you’re pre-approved for a credit card with a certain credit limit doesn’t mean you’ll necessarily get approved or receive the same terms if and when you apply for it, because the pre-approval wasn’t the final answer.

Hard vs. Soft Credit Inquiries

Now that you understand the general differences between hard inquiries and soft inquiries, and how they work, let’s take a closer look at the details.

Hard credit inquiries

A hard inquiry is a request from a potential lender to view your credit report. It’s always connected to a financial risk assessment and typically happens each time you apply for a credit card or loan.

Without pulling your credit report, a lender has no idea how risky it is to let you use their money. So they don’t know whether to approve or deny the request, or what terms to offer, like your interest rate, loan amount, or credit line.

A hard credit check requires the consumer to agree with the request. Every hard pull can slightly lower your credit score for a few months, and stays on your credit report for up to two years.

Soft credit inquiries

A soft inquiry is also a request to view your credit report, but it’s more informative than investigative. If that inquiry comes from a potential lender, it’s just to take a little peek at your credit instead of diving deeply into it. This usually happens when a creditor plans to send you a pre-approved offer, or when you submit a form to see if you pre-qualify for a card.

A soft pull can also be from a potential employer or landlord doing a background check on you. And finally, soft credit checks occur when you want to take a look at your own credit score or get a copy of one of your credit reports.

Soft credit inquiries can happen without your knowledge or permission, but they don’t impact your credit score, and you’re the only one who can see them on your credit report.

How Credit Inquiries Affect Your Credit Score

Only hard credit inquiries affect your credit score, but how big is that impact? The answer depends on a few things.

Impact of hard inquiries

Hard credit checks show on your credit report and can have a minor negative impact on credit scores. In most cases, this will be five points or less on your FICO Score, and up to 10 points for VantageScore.

If you apply for one credit card now and one in six months, the hard pulls will have very little impact on your score. But multiple hard inquiries within a short timeframe can have a compounding effect, signaling to lenders that you might be  desperate for credit, financially unstable, or unlikely to pay off all this new debt.

Of course, applying for multiple car loans or mortgages within a short timeframe just looks like you’re shopping around for the best rates and terms. After all, you’re not likely to be buying a bunch of cars or houses at once. So the credit bureaus will usually group all your applications within a certain window as one hard pull.

Impact of soft inquiries

Soft credit checks don’t have any impact on your credit score, and only you can see them. So there’s no reason not to regularly check your own credit report or monitor your own credit score.

Banks, credit card companies, and other financial institutions that offer free credit scores usually update them once a month. But you actually have many credit scores, and each institution will only offer you one of them. So if you have access to more than one version, go ahead and look at them all.

Your credit scores are calculated from data in one or more of your credit reports, which are compiled by three different credit bureaus — Experian, Equifax and TransUnion. And it’s a good idea to keep an eye on all three.

Managing Credit Inquiries to Protect Your Credit Score

It’s pretty difficult to go through life without any hard inquiries, but you can take control of your credit profile by being strategic about applications and financial tools. 

Limiting unnecessary hard inquiries

Only apply for new accounts when necessary, and sparingly, to minimize the number of hard inquiries on your credit report. And before you pull the trigger on that application, research the eligibility criteria to see if you’re a match.

Then, always see if you pre-qualify before submitting the application. If the pre-qualification looks positive, or you’ve received a pre-approval in the mail, you can submit an application knowing that you have a pretty good chance of being approved. It’s still not guaranteed, but you’ve just reduced the likelihood of being hit with the double whammy of a denied application and a corresponding hard pull.

Utilizing rate-shopping windows

Multiple applications close together are often “deduplicated,” or grouped into a single hard inquiry. However, the specifics aren’t as simple as you might think.

First of all, the size of this “rate shopping” window varies by the credit scoring model, and it could be anywhere from two to six weeks. Some FICO models consider a full 45 days to be reasonable, and give you a 30-day buffer zone before hard pulls appear, while VantageScore gives you the shortest timeframe at 14 days with no grace period.

On the other hand, FICO only groups one type of loan in their window — specifically mortgages, auto loans, or private student loans. VantageScore is more generous here, deduplicating all hard inquiries during that two weeks from all sources, including different types of loans and credit cards.

Regularly monitoring your credit report

Mistakes are surprisingly common, so don’t overlook the importance of monitoring your credit reports. Of course, check for accuracy in your own account activity — but also look for unauthorized inquiries that could indicate identify theft or other types of fraud.

Each of your three credit reports will be different, because most lenders don’t report activity to all three. You can either compare them all together, or spread them out and focus on one at a time. By law, you have the right to each one yearly, but you can now get them every week at the federally authorized AnnualCreditReport.com.

Common Myths About Credit Inquiries

You’ve probably been told the ins and outs of checking your credit score or getting your credit report, but many familiar recommendations are based on myths. Knowing the facts will help you make better decisions about your own finances.

Myth: Checking your own credit hurts your score

Personal credit checks are soft inquiries and won’t ever affect your credit score. But it’s very common to hear from friends and family that you shouldn’t check your credit score or get your credit report until you have to. And this advice is usually backed up by the mistaken belief that it will negatively impact your credit.

The part about checking your credit score might simply be urban legend. However, the confusion around credit reports probably stems from the decades when you couldn’t get a free copy of your credit reports more than once a year.

Up until the 1960s, credit reporting was kind of a wild west, with thousands of little credit bureaus across the country. The Fair Credit Reporting Act (FCRA) of 1970 led to a consolidation of small companies into the three major credit bureaus we know today. A 2003 amendment to that act, called the Fair and Accurate Credit Transations Act (FACT Act, or FACTA) granted consumers the right to get a free credit report every 12 months from each of the three nationwide credit bureaus.

That’s still the law, and credit reports only became available weekly during the COVID pandemic because consumers were facing so much financial uncertainty. So yes, people have traditionally been conscious about when they would request their credit reports because they wouldn’t get another chance until a year later. But it’s never had anything to do with whether or not it damages your credit. It doesn’t.

Myth: All credit inquiries have the same impact

Another common belief is that all credit inquiries have equal impact on your credit score. People often assume that checking your own credit report is the equivalent of a lender requesting it when you apply for a credit card.

But the former is a soft pull, and the latter is a hard pull. As we’ve seen, only a hard inquiry will affect your credit. And looking at your own info, receiving a pre-approved offer, or checking if you pre-qualify for something all fall under the “soft inquiry” umbrella.

Bottom Line

Credit inquiries — also called credit checks or pulls — come in different varieties. Being conservative about how often you initiate a hard pull, while acknowledging that you can be quite liberal with soft pulls, goes a long way towards maintaining a healthy credit score.

Speaking of soft pulls, always see if you pre-qualify before applying for a credit card. That gives you an idea of what you may be approved for, without affecting your credit unless you decide to go ahead with the application.