What are hard inquiries and why do they matter?

| January 13, 2014 | Categories: Credit | Comments Off on What are hard inquiries and why do they matter?

On your credit report you can find a section entitled ‘credit inquiries’ that lists every instance that a business has pulled your report for review. These inquiries can be divided into two distinct groups: hard pulls and soft pulls. The first distinction between these two groups lies in the reason your credit report was pulled; hard pulls are those that occur when you apply for a credit card, loan, or enter into other financial obligations including new cell phone and apartment contracts. Conversely, soft pulls are typically those performed by you personally or your current creditors. The second, and arguably the most important, difference between hard and soft credit pulls is their effect on your credit score.

While both hard and soft inquiries remain on your credit report for two years, hard inquiries are the only ones that affect the approximately 10% of your credit score determined by inquiries. Depending on the number of hard inquiries you have, up to five points may be taken off your credit score. They are taken into account when calculating your credit score because they can be indicative of your financial well-being. For instance, to creditors, multiple hard pulls can allude to financial trouble and a search for quick money or a higher debt to income ratio than you admit to.

Now that you know what hard credit inquiries are and how they affect your credit score, it is also important to note that not all hard inquiries are equal when it comes to the way they are listed on your credit report. For most inquiries, each individual inquiry counts as a single inquiry on your report; the exception to this rule are those inquiries done while you rate shop for auto, mortgage and educational loans. Each of the major reporting companies considers all credit pulls done within a fourteen day period and related to one of the above categories as a single inquiry. For this reason, rate shopping for necessary loans is still a great idea, but on the whole, hard pulls should be avoided when at all possible.

If you are wondering about the number of credit inquiries on your credit report, request your credit reports from Experian, TransUnion, and Equifax and scour the “credit inquiries” or “regular inquiries” sections of each report. If you feel like there are more inquiries there than you would like to see listed, you can attempt to request their removal by contacting the companies that pulled your credit report with letters requesting the removal of the inquiry. (Note that Experian often lists the addresses of these inquirers, but if an inquiry is listed only on one of the other reports, you will have to call that particular agency first to obtain the creditor’s address). Once you contact the creditor they can either remove the inquiry or refuse, stating that you authorized the inquiry. If the latter occurs and you are not willing to wait two years for the inquiry to disappear, you can then request documentation of your approval and review it for ambiguities that can be used to argue you did not realize what you were agreeing to.

Sources:

How Credit Inquiries Affect Your Credit Score. Credit Infocenter, 2 June 2010. Web. 25 Mar. 2012
<http://www.creditinfocenter.com/creditreports/scoring/inquiries.shtml>.

How to Erase Credit Inquiries on Your Credit Report. Credit Infocenter, 17 Oct. 2011. Web. 25 Mar.
2012 <http://www.creditinfocenter.com/repair/inqerase.shtml>.

McFadden, Leslie How Credit Inquiries Affect Credit Score. Bankrate, Inc., 19 Feb. 2010. Web. 25 Mar.
2012 <http://www.bankrate.com/finance/credit-cards/how-credit-inquiries-affect-credit-score.aspx>.

What Are Inquiries and How Do They Affect My FICO Score? Fair Isaac Corporation, 2012. Web. 25
Mar. 2012 <http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx>.

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