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Many factors shape your credit scores, including the number of hard inquiries you have on your credit file. Hard inquiries occur when you apply for new credit and the lender requests to review your credit report before approving you. They can have a minimal, temporary negative effect on your scores.
These inquiries differ from a soft inquiry that might occur when, for example, a lender provides quotes and preapproves you for credit offers. Soft inquiries have no influence on your credit scores.
So how many hard inquiries is too many? When it comes to calculating your credit scores, hard inquiries represent just one part of the bigger picture that makes up your credit scores—and a small one at that. Your payment history, credit utilization and length of credit history all play important roles.
How Do Hard Credit Inquiries Affect Your Credit?
Lenders and credit scoring models consider how many hard inquiries you have on your credit reports because applications for new credit increase the risk a borrower poses. One or two hard inquiries accrued during the normal course of applying for loans or credit cards can have an almost negligible effect on your credit. Lots of recent hard inquiries on your credit report, however, could elevate the level of risk you pose as a borrower and have a more noticeable impact on credit scores.
Hard inquiries can stay on your credit report for two years, but the degree to which they affect your credit diminishes over time. While they could initially reduce your FICO credit score by several points, your scores will likely recover after a few months. The credit score sting caused by many hard inquiries in a short period of time will take longer to go away. At any rate, both types of inquiries are automatically removed from credit reports after two years.
Again, your overall credit health is what matters most. If you have a consistent track record of making on-time payments and keeping your revolving credit balances low, it isn't likely that a few hard inquiries will have enough of an impact on your credit scores that it affects your interest rates or credit approval.
How Do Hard Inquiries Affect Rate Shopping?
From mortgages to car loans, shopping around and comparing rates and terms offered by different lenders can lead to substantial savings over the long haul. According to Freddie Mac research, borrowers who get one additional mortgage rate quote save an average of $1,500 during their loan term. That number jumps to $3,000 for borrowers who get five quotes.
Reaching out to multiple lenders can pay off, but this may also result in several hard inquiries within a short period of time. The good news is that the majority of credit scoring models will lump multiple inquiries for one loan type together and treat them as a single inquiry if they're made within a short period of time. For FICO, this window is 45 days; VantageScore uses a 14-day period.
How to Reduce the Impact of Hard Inquiries on Your Credit
Hard inquiries on their own generally aren't enough to significantly reduce your score in a lasting way. This is especially true for those who have a positive credit history. In most cases, hard inquiries result in a temporary credit score drop that rebounds within a few months.
Improving your credit score is one of the best ways to cushion the blow of hard inquiries. To do this, focus your attention on the following areas:
- Always make on-time payments across all your accounts.
- Pay down your debt and keep your credit utilization ratio below 30%; the lower, the better.
- Pay off any past-due accounts, including collections or charge-offs.
- Periodically check your credit report and credit score and pay close attention to the risk factors included with your score.
- Apply for credit only when you need it.
The Bottom Line
Hard inquiries can temporarily impact your credit scores, but strengthening your overall credit file can help minimize that impact. This begins with checking your credit score and understanding what's on your credit report. From there, you can put yourself in the best position to absorb necessary hard inquiries with minimal stress.