Whether you’re actively working to repair your credit, just establishing a credit history, or working toward a major purchase like a home or vehicle, you’re rightfully concerned about improving your credit score. You may have even done research on the subject, learning that a number of different factors go into your cumulative credit score and some have a greater impact than others.
The question that heads this article is a perfect example: Some consumers may ask, “how long do hard inquiries stay on your credit report?” while others aren’t even aware of what a “hard inquiry” is, much less how or why it would have any impact on their credit reports.
The whole subject can be complex and confusing, and there are a lot of sources of information out there that disagree with each other. As you know, here at CreditZeal.com, we’re all about the unbiased, unvarnished truth. In that vein, we’re going to provide the answer to the question that brought you here, in case that’s all you truly need. But, then we’ll look into some of the important factors that affect your credit score so you have a thorough understanding of “hard inquiries” and what their impact is.
How long do hard inquiries stay on your credit report?
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Hard inquiries will appear on your credit report for up to two years from the date of the inquiry, however they will only have a negative impact on your credit score for one year. The number of hard inquiries on your credit report accounts for approximately 10 percent of your total credit score.
Contrast this with more serious impacts, such as a bankruptcy: these issues account for about 35 percent of your score, and they remain on your credit history for a minimum of seven years.
If the two previous paragraphs made perfect sense to you, feel free to stop reading now and check out other recent articles for more informative content. If not, read on for some more depth on what hard inquiries are and why they matter.
What are “hard” and “soft” inquiries?
In financial terms, an “inquiry” occurs any time a company, store, or individual looks into your credit report. But, the credit bureaus separate these inquiries out into “hard” and “soft” types to offer a more realistic and fair view of what you’re actually trying to do while working with these companies or people.
A “soft inquiry” occurs when your credit report is accessed, but not for the purpose of obtaining new or more credit. For example:
● You check your own credit report (or authorize a third party to do so) to check its accuracy
● A lender “pre-approves” you for a credit card or loan you didn’t ask for
● An employer carries out a pre-employment background check
● A utility checks your credit report as part of the installation/new account process
In all these cases, you and others have legitimate (usually limited) access to your credit report for confirming your identity and other purposes. But, no soft inquiry is going to result in you being approved or denied for credit on its own. Therefore, soft inquiries don’t impact your credit score at all.
A “hard inquiry,” on the other hand, will impact your credit score. That’s because a hard inquiry only occurs when a lender accesses your credit report for the purpose of approving or denying a request for credit that you’ve initiated. This would include:
● Any credit card (including retail store credit cards) you apply for
● Any personal or business loans you apply for (unless your business is a corporation)
● A mortgage
● A vehicle loan
● Student loans
In all these cases, approval means you’re being handed more potential debt to use, so these hard inquiries will appear on your credit report and impact your score. That way lenders get an accurate picture of the amount of credit you already possess and they can make an informed decision on offering more.
No, a hard inquiry is not inherently bad.
Each hard inquiry will likely result in a drop of just a few points in your credit score, but (as noted above) that effect only lasts a short time. Its purpose is to differentiate those inquiries that can result in additional credit from those that cannot. As such, they serve an important role, and can be strategically managed to make sure your credit report remains clear and accurate.
However, there are definitely circumstances in which hard inquiries can become a negative thing, pulling down your credit score dramatically and even getting in the way of important purchases.
When are hard inquiries bad?
If you pile up multiple hard inquiries in a short amount of time, the combination of small subtractions can really hurt your credit score. Losing a few points from your credit score each time isn’t the worst of it, though. Numerous hard inquiries in a short time can cause the credit bureaus to take notice, doing more damage.
For example, assume you’re just innocently shopping around for a good offer on a credit card, but while you’re gathering information you go ahead and apply for five different cards in a three-week period. You may not even have any intention of accepting or keeping all those card accounts open. But, since you’re initiating them, every credit card application you submit will result in a hard inquiry. Too many applications for new credit can send up a red flag for the bureaus: it seems to indicate you’re facing financial problems, or you’re spending recklessly.
If that’s the impression the credit bureaus get, your score can go down even more. While the bureaus tend to overlook large purchase inquiries that come in clumps (like 3-5 mortgage inquiries, for instance) — because they recognize you’re shopping around for the best interest rates — smaller credit applications can’t be overlooked that way.
The better option for smart consumers is to strategically space out any applications for new credit to give time for the hard inquiries to fade from your credit report.