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Credit: PhotoMIX Company
It starts out innocently enough.
You hear about a great interest rate on a personal loan, or you apply for an apartment that offers a lower monthly rent than what you’re paying now.
But without realizing it, you may have lowered your credit score.
The credit reporting agencies classify two types of credit checks: hard and soft. With a soft inquiry, a creditor simply checks your score to make sure you qualify. These often happen with creditors that advertise they’ll “preapprove” or “preauthorize” you for an opportunity. Soft credit checks don’t show up on your credit report and don’t impact your score.
A hard credit inquiry, on the other hand, can cause lasting damage. Here’s what you need to know to protect yourself, along with some tips.
What Is a Hard Credit Inquiry?
When you apply for a loan, a lender wants to make sure you’ll pay on time each month. That lender checks your credit score.
With a soft credit inquiry, sometimes known as a preapproval, a creditor takes a quick look at your score to make sure you qualify. This is recorded as a soft check and doesn’t affect your score.
A hard credit inquiry, on the other hand, takes an in-depth look at your report. A lender needs your permission to run this type of check. You’ll usually know when this type of check is happening.
Unlike a soft check, a hard credit check affects your credit score. It shows up as recent credit activity.
But before we can explain how hard inquiries work, it’s important to first review how credit scores are calculated.
Five factors influence your credit score:
- Payment history: Accounting for 35 percent of your score, this is your record of on-time payments.
- Amounts owed: How much debt do you currently have? The more credit you have, the more you’re at risk of not paying your loans, also known as “defaulting.” This counts for 30 percent of your score.
- Length of credit history: As 15 percent of your score, this figure considers the age of your oldest account, the age of your newest account, and the average age of all your accounts.
- Credit mix: This only makes up 10 percent of your score, but it looks at the diversity of your credit types. A mix of multiple types, like credit cards, installment loans, mortgage loans, and personal loans, is ideal.
- Recent credit activity: Accounting for 10 percent, this focuses on any accounts you’ve opened recently. It’s best to avoid any new credit if you plan to apply for a mortgage or car loan soon.
As you can see, recent credit activity makes up only 10 percent of your score. So although it’s important to limit hard credit inquiries, you won’t kill your score with the occasional credit application.
Credit: Andrea Piacquadio
The following loan types will typically require a hard credit pull:
1. Mortgage Loans
Buying a home is an intense process. You’ll need to fill out applications, provide stacks of documentation, and answer questions as they arise.
And, yes, in the background, lenders are checking your credit.
There are three major credit bureaus, and a mortgage lender will pull your report from all three. That’s Equifax, TransUnion, and Experian. The lender will also gather your FICO Score, which is a three-digit number based on the percentages listed above.
If you shop multiple lenders, your credit report may see multiple credit checks in a short time. Even if a lender runs a hard credit check to preapprove you, though, lenders will understand you’re shopping around, and this recent credit activity will likely be disregarded.
2. Auto Loans
Unless you pay cash for a car, you’ll need a loan to buy one. You can go through the dealership or seek out a loan from a credit union or bank.
With either option, you’ll see a hard credit inquiry once you’re ready to buy.
As with mortgage loans, it’s okay to pursue multiple loan options at once. Just keep those applications within a short period of time to make it clear you were comparison shopping.
3. Credit Card Applications
Get preapproved today!
If you have a mailbox, likely you’ve seen that messaging, printed in bold across an envelope.
The offers can be tempting, too. Enjoying 0 percent interest for a year or two can be useful, for instance, and a credit card with no late fees sounds phenomenal.
With these offers, creditors have already run a soft check to make sure you’re a good fit. Only when you fill out that application and turn it in will there be a hard credit inquiry.
But you can also seek out credit cards that offer competitive rates and plenty of perks. In this case, make sure the preapproval process is, indeed, a soft credit check. Only once you’ve qualified should a hard check take place.
4. Credit Limit Increases
As you prove yourself to be a reliable cardmember, your credit card issuer may occasionally increase your credit limit. When this happens, there’s no need for a hard credit check because you’re an established customer.
But what happens if you contact your credit card company to ask for a limit increase?
It depends. Some credit card providers will run a hard credit check and some won’t. The best bet is to ask when you request the limit and decide, based on that answer, whether you’re willing to take a slight hit to your credit score to get a little extra wiggle room on your spending each month.
5. Personal Loans
Need a little money for that European vacation on your bucket list?
Or maybe you’re taking out a loan to pay for college or medical expenses.
A personal loan typically offers competitive interest rates and reasonable terms. But lenders want to make sure you’ll pay on time until the loan is paid in full. Once you progress past preapproval to the application process, a lender will run a hard inquiry to qualify you as a borrower.
Whether it’s your mortgage, a personal loan, or a student loan, refinancing can earn you a lower interest rate and better terms.
As with your original loan, though, lenders will need to check your credit. But over time, refinancing might help your score. If refinancing your loan helps you pay it on time each month, you may find it helps your score overall.
7. Lines of Credit
Lines of credit can be a great alternative to a personal loan.
Here’s how they work:
A lender issues a fixed amount that remains in place for a specified period–usually three to five years. There are two phases of a line of credit. During the first phase, known as a draw period, you take as much of the line as you need. You can begin to pay back the money you’ve borrowed during this time.
At some point, the draw period ends. That’s when you enter the repayment period. You can no longer borrow from the credit line, and you’ll need to make regular payments as you would with any loan.
Since you’ll need to reliably pay back the funds you borrow, a lender will run a hard credit check that will impact your score. However, having the line of credit open will increase your available credit, so you will see some benefits to your score.
Preventing Hard Inquiries
Unless you never need to borrow money, chances are you’ll have a hard credit check at some point in your life. I’ve found it’s better to occasionally use credit to keep my credit history fairly active. The key is to be as strategic about it as possible, especially if you see a mortgage or car loan in your near future.
Here are some tips to help you reduce the number of hard checks against your credit.
1. Limit Your Credit Applications
We’ve already established that those hard credit checks knock your score down a little. Recent credit activity makes up 10 percent of your score. How recent is “recent,” though?
FICO looks at the last 12 months of credit activity. However, a hard credit inquiry can stay on your report for two years. That means even though your score might have recovered, a lender who pulls your report will see those inquiries listed.
That’s why it’s best to do all your lender shopping at once. If you’re looking for a home or car loan, for instance, shop within a short timeframe to make sure you take the hit in one solid chunk.
That said, don’t let your FICO fears keep you from grabbing credit when you need it. Here are a few instances when the benefits you get from credit might outweigh the disadvantages.
You Need to Establish Credit
At some point in your life, you’re going to need credit.
The problem is, it’s hard to get credit if you don’t already have it.
Whether you’re just starting out in life or you’ve hit a rough patch and need to recover, establishing credit is essential. Not only is your length of credit history 15 percent of your credit score, but 35 percent of your score is based on your on-time payments. If you haven’t been making payments because you don’t have credit, it can hurt you.
Even if you have a long history of borrowing funds, though, you could have activity that impacts your score. Your favorite credit card issuer could close your card, which will increase your credit utilization ratio. Even getting a new card can improve a sagging credit score long-term if you pay on time.
All of these “big picture” benefits can cancel out any temporary hit your credit score takes.
You Can Consolidate Debt
Having multiple loans can be bad for your credit for one reason:
It can be easy to let a payment slip through the cracks.
For some people, consolidating two or more loans into one monthly payment makes life easier. You might transfer multiple credit card balances to one card to lower your interest rate, for instance. Or you might go a step further and consolidate some personal loans with your credit card balances.
If you’re taking out a new loan to handle the consolidation, you’ll have a hard inquiry. But if it helps you make your payments on time and save money on interest in the process, it could be worth it.
One note, though:
Avoid scams. The loan waters have plenty of sharks, and those sharks may come in the form of “debt consolidation loans.” Some of these offers are from debt settlement companies that promise to help you get out of debt for a fee. If this fee is charged up front, it’s a sure sign it’s a scam. Debt settlement companies are required to actually deliver on some promises before charging for their services.
You Can Lower Your Interest Rate
If you’ve been tossing all those offers in the garbage, there might be a reason to reconsider.
Lowering your interest rate can actually be a good thing. Sure, you’ll have a hard inquiry, but this is another one of those big-picture things we’ve been talking about.
Say you have a credit card that charges 21.92 percent interest. A new offer promises one year no interest for balance transfers, plus 15.49 percent after that year is up. For a year, you’ll pay no interest at all, which means you can put that extra money toward paying down your balance. Even when that year is up, you’ll still save on interest each month.
What happens when you pay your balance down? You improve your available credit. So, yes, you might have lowered your score with the initial inquiry, but as long as you keep paying down the principal, you’ll enjoy the benefits of having more available credit well into the future.
You’re Shopping Multiple Lenders
Comparison shopping is always a good thing. If you only look at one lender, chances are, you’re missing a better deal from someone else.
The good news is, you’ll probably be able to get rate quotes without hard credit checks. But even if you have to go through a full credit check to get a better deal, it won’t hurt all that much.
You probably aren’t shopping for loans and credit cards year round. You’ll do all your shopping in one quick go, then move on with your life. Lenders know, looking at your report, that you likely were comparison shopping to have so many inquiries at once.
So simply keep all your loan shopping in one fixed period, and your score should be able to rebound quickly.
2. Read the Fine Print
Credit: Andrea Piacquadio
In your search for a lender who won’t ding your credit, you’ll probably see plenty of promises.
“Rate check won’t affect your credit score.”
“No harm to your credit.”
All too often, though, all you see are words like “get preapproved now.” You can assume this won’t hurt your credit score, but how can you be sure?
Most lender offers have fine print visible from somewhere within the offer. It will likely be at the bottom of the website or contract. Sometimes you’ll be directed to a separate page to read all the details.
If you can’t find specifics about how credit checks are handled, contact the lender and ask. Once you’ve completed the application and begun the process, there’s no way to remove the credit inquiry from your report, so it’s better to ask if you aren’t sure.
3. Don’t Sweat the Occasional Hard Credit Check
Now that we’ve gone through all that, there’s one thing to state again.
An occasional hard credit check won’t make a huge difference.
Remember, new credit application only makes up 10 percent of your FICO score. It’s more important to focus on the other areas that define a score. Pay your bills on time, keep your balances low, and try to consolidate multiple credit applications to the same short timeframe.
How to Remove Hard Inquiries
Now for the fun stuff.
Did you know your credit report could have erroneous information on it?
In fact, one study found that one in three consumers had found at least one mistake on a credit report.
One in three!
That means if you aren’t keeping an eye on your report, you could have hard inquiries listed that aren’t even accurate.
The good news is, you can do something about those errors. If you’re concerned about hard inquiries, here are some steps to take once they’ve found their way onto your credit report.
1. Access Your Credit Report
Did you know you’re entitled to one free credit report a year?
It’s actually not just one, but three. You get one free credit report from each of the three credit bureaus. Best of all, you don’t have to chase them around the internet. There’s one handy site to request them all.
To access your reports free of charge, visit AnnualCreditReport.com and input your information. You’ll have to request each report separately, but you can do it all from this one site.
Before you get started, though, there are two ways to request your reports. Each has its own benefits.
Request All Reports at Once
Since you get one free report a year, many people choose to do it all at once. The best thing about this is that you can review everything and take action. If there is an error, you can do something about it immediately.
Request Each Report Separately
It’s important to note that you don’t have to get all three reports at once. You can space them out.
Why would you do that? Simple. When you space your reports throughout the year, you can keep an eye on your credit. I like to request one every four months.
Oh, and a quick tip:
Through 2026, Equifax allows at least six additional free credit reports a year. So be sure to take advantage of that.
Get Additional Free Reports
There are other times you’re entitled to a free credit report.
First, if you’re turned down for credit, you have the right to know why. Ask the lender for a list of reasons, and if a credit report was to blame, find out which report. You then have 60 days to request a free report from that credit bureau.
You may also be entitled to a free report if you’re out of work, receiving public assistance, a victim of identy theft or fraud, or your credit file has an alert on it.
Here’s where to get your free copy from each bureau:
2. Isolate Hard Inquiries
Once you have your credit report in hand, you’ll need to pinpoint hard inquiries. Some reports make this easy, labeling them “hard inquiries.” However, on some reports, they’ll say credit inquiries, requests viewed by others, or regular inquiries.
Soft inquiries, on the other hand, should be disregarded since they don’t affect your score. Lenders know to exclude them, too. They’ll appear under terms like soft inquiries or requests not viewed by others.
3. Look for Errors
On your report, you should only see hard inquiries that were authorized by you. I usually review the list and highlight anything that doesn’t look unfamiliar. That’s when the work begins.
The toughest part about reviewing your credit report is that companies fall under different names. If you have a store credit card, for instance, the name of the store’s finance company could appear. You may also see abbreviated versions of business names or parent companies.
When I see a creditor I don’t recognize, I cross reference the dates and amounts. I’ll sometimes look at my own bank account to see if it jogs my memory. If I’m still coming up blank, I pick up the phone and call the creditor. At that point, I usually can get information on the types of credit that particular company issues.
If none of that bears fruit, it’s time to move to the next step: disputing errors.
4. Dispute Any Errors
With one in three consumers spotting errors on credit reports, it’s no surprise there’s a process for disputing them. These days, it’s easier than ever. Here are the steps to follow to dispute items on your credit report.
When it comes to disputing credit reporting errors, the burden of proof is on you, the consumer. Before you file your dispute, make sure you have everything you need to state your case. This includes:
- The credit report with the error circled.
- Copies of account statements or canceled checks to prove you made on-time payments.
- Proof of identity if the error is related to identity theft or fraud.
File the Dispute
Each credit reporting agency has its own process for disputing errors. In all cases, you’ll complete a form on a website and wait for a response.
Look at the name at the top of the credit report in question and go to the corresponding website to start the dispute process.
If you’d prefer to dispute an error by mail, that’s also an option. Equifax, Experian, and TransUnion have mail-in processes, although this will slow things down a little.
Wait for Results
Once you’ve filed your dispute, all that’s left to do is wait for a response. Credit bureaus have 30 to 45 calendar days to investigate a dispute, along with five business days to notify you of the results at the end of that investigation.
During this time, the credit bureau will often reach out to the creditor for a response. That creditor will be given a limited timeframe to respond. If the creditor doesn’t respond, can’t verify the information, or finds it’s incorrect, the credit bureau will typically rule in the borrower’s favor.
If the information was, indeed, wrong, your credit report will be corrected and you’ll get a free copy of the revised version. This doesn’t count as your free credit report for the year.
At various points in your life, you’ll depend on your credit score. By doing all you can do to keep it healthy in the in-between times, you’ll boost your chances of getting credit when you need it. Understanding how hard inquiries work is a great first step. It will help you keep your score from being impacted by excessive credit checks.
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