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Do credit card inquiries hurt you long-term? If I apply for credit and am denied, how many points will my score drop?
It's true that inquiries can have an effect on your credit scores, but in most cases the effect of applying for credit cards is minimal, and any effect they do have is temporary.
An inquiry is simply a record that your credit report has been accessed. Your credit report will show an inquiry when you apply for credit after the lender reviews your report. Experian will not know whether you are approved or declined, so being denied credit will not affect your credit scores.
Types of Inquiries on a Credit Report
There are two types of credit inquiries: "soft inquiries" and "hard inquiries."
Soft inquiries are usually initiated by others, like companies making promotional offers of credit or your lender conducting periodic reviews of your existing credit accounts. Soft inquiries also occur when you check your own credit report or when you use credit monitoring services from companies like Experian.
Again, these inquiries are not included in credit score calculations, so they do not affect your credit scores.
Inquiries appearing in the section of the report that is seen by others are the result of applications you have made for credit or for goods or services. These inquiries are known as "hard inquiries," and they are included in credit score calculations.
How Applying for a Credit Card May Affect Your Credit
When you apply for a credit card, the company will check your credit report as part of the approval process. A hard inquiry will appear on your report showing that the company requested it. You may see a slight drop in scores at first, but a single inquiry for a credit card is not likely to have a substantial effect.
There is no set number of points assigned to each inquiry. The number of points the inquiry will have depends on the rest of your credit history and on your recent credit activity. If you have a positive and stable credit history, the impact of applying for a new account will be minimal.
Generally, the impact of an inquiry fades rapidly. Although the inquiry must stay on your report for two years, after a billing cycle or two there will either be a new account, which then represents the credit risk, or there won't be a new account, so the inquiry no longer represents risk.
FICO scores exclude the inquiry completely after 12 months.
An inquiry, by itself, will never be the reason your application is declined. Inquiries only become an issue when your credit scores are already marginal. The things that made the score borderline in the first place will be more important than the inquiry.
Deciding When to Apply for Credit
While you shouldn't be afraid to apply for credit, you should be selective in deciding what to apply for and when. Because lenders may view multiple applications for credit cards within a short period of time as a sign of financial distress, your credit scores will reflect that risk.
Therefore, if you know you will be making a major purchase on credit in the near future, you may want to delay applying for any other new accounts until after you have secured the credit you need.
The "Ask Experian" Team