How Applying for Credit Impacts Your Credit Score

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Through December 31, 2023, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.

Applying for new credit can impact your credit slightly, but the application alone is not nearly as important as how you use your new account.

What Happens to Your Score When You Apply for Credit?

When you apply for a new credit account, you'll authorize the lender to view one or more of your credit reports. This is necessary nearly anytime you apply for a loan, as the lender will need to examine your credit history to determine your creditworthiness. When the lender requests your credit report for the purpose of evaluating a loan application, it's often referred to as a "hard inquiry" or a "hard pull."

Each hard inquiry gets added to your credit report and can have an effect on your credit score. That's because credit scoring models can interpret multiple new inquiries as a sign of possible financial trouble. For example, some people may apply for many new lines of credit when they are having trouble paying their bills or because they are spending more than they can afford.

Thankfully, the credit scoring models consider multiple inquiries in a short period for certain types of loans, such as auto loans and home mortgages, as rate shopping, and will consider them as just a single inquiry. This is to prevent your credit score from suffering when you are really just shopping for the best rate on a single loan.

Hard inquiries are just one of many factors that make up your credit score. With the FICO® Score model commonly used by lenders, your payment history counts for 35% of your score, and your credit utilization, or how much of your available credit you're using, is another 30%. Your length of credit history makes up 15% of your FICO® Score, while your credit mix, or the different types of credit products you have, makes up 10% The number of recent inquiries on your credit report counts for 10% of your credit score, making it a relatively minor factor. Therefore, paying your bills on time and carrying a low amount of debt will be far more important to your credit score than your recent inquiries.

Soft inquiries, or soft pulls, occur when you view your own credit report or a lender or credit card issuer views your report to preapprove you for a financial product. Insurance companies can also request soft inquiries when approving you for insurance. But regardless of the source of the soft inquiry, it will never affect your credit score. For more information, see "Hard vs. Soft Inquiries on Your Credit Report,"

How Long Does a Hard Inquiry Stay on Your Credit Report?

Hard inquiries will stay on your credit report for two years, but their effect on your credit score will decrease over time. And after one year, they won't have any effect at all on your FICO® Score. For more information, see "How Long Do Hard Inquiries Stay on Your Credit Report?"

How to Remove a Hard Inquiry From Your Credit Report

While you might want to remove one or more hard inquiries from your credit report, there isn't a way to do so if you originally authorized the inquiry. But if you believe that an inquiry appears on your credit report due to fraud, then you can dispute it with the three main credit bureaus (Experian, TransUnion and Equifax). If your dispute reveals you've been a victim of fraud, then the bureaus should be able to remove the fraudulent inquiry from your reports.

How to Minimize the Effect on Your Credit Score When Applying for New Credit

When applying for new credit, there are a few things you can do to reduce the impact of a hard inquiry on your credit score. First, you should take advantage of the rate shopping exception for multiple hard inquiries. With the FICO scoring model, multiple inquiries on the same type of loan made within 45 days are typically treated as a single one, reducing their effect on your score. This is the case for auto loans, home loans and student loans, but it doesn't apply to other forms of credit.

It's also important to monitor your credit reports to see how these new inquiries are affecting your credit history. Experian offers a free credit report every 30 days when you sign in, or you can receive one free copy of your credit reports from each of the three bureaus annually at Keeping an eye on your credit reports and scores will help you understand how new credit applications can affect your credit—and give you insight into all the factors that go into creating your credit history.

How Good Is Your Credit Score?

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