Credit inquiries. To me, one of the most frustrating topics when discussing credit reports even though it only accounts for 10% of your overall score. Let me explain.
(1) What is a Credit Inquiry?
A credit inquiry is just a fancy way of saying a credit pull. When you have your credit pulled, you are inquiring as to your credit score and credit report.
This happens when you apply for a new loan (vehicle, student, mortgage, credit card, etc.). However, this does NOT happen through an app like Credit Karma, Experian, or one that you may have with your credit card or bank that gives you a credit score without pulling your credit report. That is called a soft credit pull.
You can learn more about the difference between hard and soft credit pulls here.
For today, we are talking about hard credit pulls only.
(2) What Happens When You Have a Credit Inquiry?
This is the frustrating part of it all. When you have your credit pulled, your score will actually drop. Doesn’t that suck? In order to see what is actually on your credit report and get your credit score, you have to ding your credit! Gah!
The good news is that it doesn’t hurt that badly. In my experience as a banker, I would typically see a 10-15 point drop for pulling someone’s credit for about 60 days. That is not a hard and fast rule of course, but generally it won’t hurt too badly. It just sucks that a credit inquiry hurts at all.
(3) How Long Does a Credit Inquiry Stay on Your Credit Report?
This one is a little hard to say. But in my experience (and in the experience of others) it typically stays on your credit report for about two years. This isn’t really that bad because typically, all other information on your credit report will stay for about 7 years.
(4) How Many Credit Inquiries is Too Many?
There is no completely correct answer to this question. But the general rule is to keep hard inquiries to no more than one per year. This isn’t always possible though. Sometimes you might be in the process of getting a mortgage and then your car dies and you get a car loan. Life happens. Remember that credit inquiries have a very temporary effect on your credit score and only stay on your report for two years.
So if you have to have two or three hard inquiries in a year, that’s okay. Just try not to make it a habit.
Also, if you are rate shopping, do it in a short period of time. For example, if you are looking for a mortgage, go to a few different lenders and have them each run your credit within a two or three week time frame. When you do that, the extra credit inquiries will not affect your credit score any worse than the first one. #LifeHack #CreditHack
Final Thoughts
A credit inquiry is not a real big deal. Make sure to limit the number of times that you have your credit pulled (a hard pull). If you are rate shopping, do it within a few-week time frame. And if you are trying to improve your credit score, make sure to not focus on your credit inquiries too much.. Your payment history, collection accounts, and credit card utilization are FAR more important. You should focus on fixing those first.
Until next time!
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