What Is a Hard Inquiry and How Does It Affect Credit?

What Is a Hard Inquiry and How Does It Affect Credit

Loans have been helping people for a long time now. You can legally borrow money to cover medical bills or unexpected house expenses. However, the procedure isn’t as easy as it seems. To get the credit, consumers have to go through a check-up. 

What Is a Hard Inquiry and How Does It Affect Credit?

Hard Inquiry is a process when customers’ transaction history and paying abilities get revised by the lender. It impacts further financial activity and credit score. To avoid problems and build a decent reputation, you must get acquainted with the field and dive deeper into details.

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What Is a Credit Inquiry?

A credit inquiry is a process of verifying customers as trustworthy candidates. It means that the lenders send a request to the credit reporting agency to check your payments and transaction history. Yet, remember that the procedure has to be legally permitted, and try to avoid hacking and data leaks. Never give your personal information to unconfirmed parties.

There are two types of inquiry: hard and soft. Correspondingly, a hard inquiry will impact your credit score and most likely change it. However, whether the changes are positive or negative depends on you. To not be involved in trouble, apply for a credit only when it is needed. 

Usually, consumers receive loans when they need money for cars, houses, medical expenses, etc. A soft inquiry, on the other side, will not affect your credit score. Instead, it’s requested for personal reasons, such as checking your credit report. 

What Is a Hard Inquiry?

The hard inquiry appears each time the consumer applies for a new loan. It is requested by a credit bureau and has to be provided to complete the borrowing. Also, the procedure includes using customers’ Social Security numbers. A hard inquiry is mandatory and can’t be neglected while in the credit underwriting process. 

It shows the full report of a creditor and some details such as credit history and score. However, this type of check-up happens only after your permission. Customers can decline the request, but then possibly they won’t get the mortgage. 

You can always tell if there was a hard inquiry made over someone’s account – it always leaves a mark in the form of a slight score decrease. The information of a check-up remains on the credit history for two years.

Yet, some customers apply for a loan several times during that term. It’s better to hold up a bit, pay small fees, and only after taking a new mortgage. Otherwise, the lender will consider you an untrustworthy and risky client, which might cause the cancellation of the borrowing request.

Examples of a Hard Injury

Hard Inquiry appears in cases of big purchases. This way, lenders assure the safety and trustworthiness of the deal. However, there are plenty of situations when consumers need money, so let’s see some examples of tough inquiries that you can pull: 

  •     Apartment rental
  •     Student loan
  •     Personal loan
  •     Credit Card
  •     Auto loan
  •     Mortgage applications 

Please consider that it’s not a verified list of hard inquiry cases, which can vary. If you want to ensure your situation suits the loan, directly ask the company, financial institution, or credit card issuer.

What Is a Soft Inquiry?

Soft Inquiry isn’t shown on the report and doesn’t impact a credit score. There are lots of different reasons why consumers request it. One of the cases is based on marketing purposes. Credit bureaus and credit companies have close relations with each other. Therefore, credit companies modified the soft inquiry to identify suitable borrowers for their underwriting requirements for a mortgage. 

The other benefit is helping customers find a loan. Credit Association services usually use the feature. They ask for Social Security numbers which make prequalification offers and soft inquiries available. Some lenders may provide loan terms and conditions through soft inquiry. 

The initial reason for requesting the inquiry is a personal credit report. A vast percentage of consumers want regular reports with detailed information about their financial accounts. Credit reporting agencies are the ones who provide such a feature. Also, there is a free annual report that is available and sent to every consumer. 

Examples of a Soft Injury

Sometimes, it’s hard to classify the credit and understand whether it suits specific terms. To be more precise, there are a couple of cases when credit checks may be considered both hard and soft inquiries – for instance, internet, utility, cable, or cellphone credit. 

Yet, let’s get more acquainted with examples of soft inquiry: 

  •     employment verification such as background check;
  •     “Prequalified” insurance quote;
  •     “Prequalified” credit card offers;
  •     Regular credit score check-ups. 

Most small operations that don’t put lenders and customers at risk might be considered soft inquiries.

What’s The Difference Between Hard And Soft Credit Inquiries?

Hard inquiry vs soft inquiry – the difference between these two is easy to understand. At first, the impact on your credit score. In the case of a hard inquiry, it will change a little – usually, it decreases a bit. With the soft inquiry, it works vice versa. It doesn’t affect anything ad sometimes even helps to find better loan propositions. 

The purposes of issuing are also slightly varying. Creditors make a soft inquiry to provide prequalified offers. In comparison, the hard inquiry is made by the creditor and lender when you’re applying for the loan for a hard credit check. 

Also, a hard inquiry is a more serious process because it needs approval from both sides. You, as a customer, have to accept or decline the hard inquiry request, and the creditor has to conduct the full check, giving the decision afterward. A soft inquiry doesn’t require such steps and can be done without your consent. 

Why Hard Inquiries Matter

When applying for a loan, a wide range of factors are considered. Hard Inquiry plays the final role in deciding whether you’re trustworthy and able to get the credit or not. Moreover, each lender requesting your credit report can see only hard inquiries.

Consequently, the more inquiries you have, the higher risks that you won’t be capable of paying off the mortgage. Therefore, you need to get acquainted with the terms before borrowing. 

There is a two-year rule attached to the loan application. Yet, it’s not a set requirement, but it helps a lot in building up a reputable credit score. Once you borrow money and pull the hard inquiry, it will remain in your history for two years.

Therefore, it’s better not to take any other credit during the terms. Take some time to pay off the loan first. After the hard inquiry disappears from your check, you will be able to apply for a new mortgage when it’s needed.

How Does a Hard Inquiry Affect Your Credit Score?

Many people worry that going through a hard inquiry will affect on credit score until it expires. However, a hard inquiry is a one-time-impact check-up. It changes your credit score only during the process of borrowing. After, it remains in your credit history but doesn’t change much.

Your credit history plays a prominent role in defining the sizes of the hard inquiry. According to FICO, the maximum number of points you can lose is 10, but most consumers’ scores decrease by five or even less. Of course, some exceptional cases exist when individuals have a more extensive inquiry. 

Anyway, if you have a decent credit history, your score won’t be damaged that much or won’t be touched at all. The situation is different for consumers with a short credit score – hard inquiry can take more points from their accounts. However, it is essential to grow a reputable score and credit history. 

How to Minimize the Impact of Hard Credit Inquiries

There were many cases when hard inquiries damaged customers’ scores, and those individuals couldn’t get back on track with a stable spending history. Yet, to avoid problems and minimize the impact of hard inquiry, you need to follow several simple pieces of advice that can significantly change the situation. It is crucial to learn financial literacy and be capable of rational thinking regarding such an important question.

Don’t Apply Just to Apply

Sometimes consumers apply for credit just because they want to see how it works and get some additional money. Unfortunately, they don’t get into the field and don’t learn through terms of the loan application. Then, when it comes to the hard inquiry part, they accept the check-up and lose points for nothing.

So, take the advice into account – take the loan only when necessary, and you have no other solution but this one. Choose the option that you would benefit from using. Don’t forget to conduct the needed research to find the most suitable and approachable variant for yourself.

Plan When Shopping for Rates

Don’t rush here. Planning is a feature of the great and wise mind. Take some time to surf the Internet, looking for different options. Learn the benefits and drawbacks of each selected rate. Consider fees, risks, and remaining terms.

In addition, while waiting and researching, you may face a better opportunity for yourself. Otherwise, you will apply for several loans, which will cause decreasing credit score. Another good idea is to shop around with the prequalification tools.

At this rate, you can check whether you’re meeting the qualifying requirements without damaging the score and be certain how to proceed in case of need.

Avoid Applying for a Lot of New Credit All at Once

As we mentioned, it’s dangerous to apply for extra credits simultaneously. There is a wide range of reasons, but the main one is the possibility of request cancelation.

When the creditors or lenders see that you have taken more than, let’s say, five loans in a short period, they will be concerned about whether you can pay everything off. 

Some additional factors, such as your income and monthly expenses, support the decision. Experts recommend making the gap between mortgages at least six months long. It will ease the payment process and make you a responsible and trustworthy client.

Yet, if you can wait a couple of years until there is no sign of hard inquiry in your credit history, you better go with this option.

Can You Avoid a Hard Inquiry?

A hard inquiry is a complex process that harms the score. Therefore, customers don’t want to go through it. But unfortunately, there is no way to avoid the check-up while applying for a loan. But here comes a trick – several hard inquiries proceed when you go through the verifying procedure.

So, with the right approach, you can vastly ease the impact of the inquiry and avoid harmful consequences.

First, always think before you borrow. Do you need that money? Are there any other options and solutions to your problem? Are you capable of payback? Ask yourself these questions each time you’re thinking about a loan application because once you’re in, there is a point of no return. Also, request a soft inquiry to check whether there are any unauthorized inquiries on your account.

How Long Do Hard Inquiries Stay on Your Credit Report?

Once consumers apply for credit and go through the hard credit inquiry, they must know that the mark stays for a long time. It remains in accounts for 24 months and affects the score only half of the term – approximately 12 months.

It can slightly decrease the number of points you have, but no more than 10. If you have a fair credit history, issues may not be taken away at all, and then the hard inquiry will be nothing more than just a sign of your loan.

How to Dispute Credit Inquiries

A hard inquiry is supposed to remain in your credit history. This way, lenders see how much credit you had taken when you applied for them and how fast you’ll be capable of repaying them. So, this kind of hard inquiry removal isn’t possible.

However, if you find an unauthorized hard inquiry, you can file a dispute letter to the bureau. They will review it and then remove it from your report. After that, the bureau will investigate your case until they find it superficial.

Conclusion

When individuals apply for a mortgage, they must undergo a check-up process. This process has two directions: a hard inquiry and a soft inquiry. The first one requires legal permission and lets the creditors and lenders receive a full report of consumers’ accounts.

There is no way to avoid hard inquiry but minimize its impact. Borrowing money, consumers have to be aware of the score decrease consequences. 

Soft inquiry works the other way. It doesn’t require customer consent and doesn’t affect the credit score. Mostly, individuals use it for personal purposes. There are a variety of details that have to be taken into account as well.

For example, the difference between inquiries, why this step is obligatory, and what possible consequences of each of them are. Try to carefully read through the article again and make notes to avoid the same mistakes over and over again while applying for new credits.

FAQ

How many points does a hard inquiry affect a credit score?

According to FICO, the maximum decrease is 10 points. However, it’s rare to get a minus 10 points because of the hard inquiry. Frequently, consumers lose 5 points or even less. The number of points taken depends on your credit history and the account term.

Is Сredco a hard inquiry?

Credco always provides check services for the loan industry. Usually, it is attached to home loans. Most consumers will see the Credo as a hard inquiry on their credit score. Unfortunately, until Credco hard inquiry is on your payment history, it will damage your score.

Can a company make a hard inquiry without my permission?

Hard inquiries must always proceed legally and only with your permission. If you have noticed an unauthorized inquiry in your financial history, you must refer to the parties. It might be dangerous because consumers provide Social Security numbers and a full account report with the demanding inquiry.

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