Having a lender pull your credit can be a scary experience and it can be worse if you’re not hip to the lingo of a credit report. what-is-a-hard-inquiry When a lender throws out terms like soft vs. hard inquires it can sound like a trip to the doctor for a mystery disease.
Loan Officer: Mr. Driscoll lets take a look at your credit report.
Loan Officer: Hrmm I see a few hard inquires…
Me: Is that bad?
Loan Officer: Have you had them long? You should look at having them removed.
Me: Am I going to die?
Loan Officer: No, but my kids can go to a better college. Cha-Ching!
So what is a hard inquiry and how do we get them? A hard inquiry is a mark on your credit report when a lender pulls your credit report. They can come from credit card offers, mortgages, car loans, store credit offers, landlords, etc.
Are hard inquiries bad? The short answer is yes. Hard inquires will have a negative effect on your credit score. This can lead to higher loan rates, or denial of credit. A hard inquire will effect your credit score for around one year. It will remain on your credit report for around two years.
The good news is, if you are shopping for a car loan or a mortgage you can shop around. The credit score company’s will let you shop for the best rate you can find on yoru new car or home with only impacting you with the equivalent of one hard inquiry. That said they expect you to shop quick, the general rule of thumb is you have about a two week window to shop for you credit.
With any other type of credit they are not quite as nice. Every time you have a lender pull your credit it will give you hard inquiry and hurt your credit score. The reason for this is they assume that you have read all the fine print for the credit card, or similar offer and you know the rate you will receive so there is no shopping for the best rate.
Why does a hard inquiry hurt your score? The credit score companies think that if you’re shopping around for credit, that you will probably get said credit. And if you have too much credit available you could over spend and not have the ability to pay back all of your creditors, making you a higher risk than a person who only shops for credit every few years.
You can have hard inquires removed from your credit report if they are inaccurate. Pull your credit often and look for inaccuracies if you see a hard inquiry that is not yours write a letter to the credit bureaus asking them to remove it, and it will improve your credit score.
What about soft inquires? Soft inquires are when you pull your credit yourself. Soft inquires have no effect on your credit report, and lenders can not see soft inquires. You are free to pull your credit and check your credit report as often as you want with no negative effects to your credit score.