How many points does your credit score drop when a lender looks at your credit report?
According to FICO, a hard inquiry from a lender will decrease your credit score an average of 5-10 points. If you have a strong credit history and no other credit issues, you may find that your scores drop even less than that. The drop is temporary. Your scores will bounce back up again, usually within a few months, assuming everything else in your credit history remains positive.
What is the difference between a hard inquiry and soft inquiry?
There are two types of inquiries on a credit report, often referred to as "hard" and "soft:"
- A hard inquiry appears under the section on your report that reads "inquiries shared with others." They are displayed when a lender checks your credit report because of an application for goods or services, so they may affect your credit score.
- A soft inquiry appears under the section that reads "inquiries shared only with you." They are not seen by anyone but you, so they do not impact your credit scores (with the exception that insurance companies may be able to see other insurance company inquiries).
What about when you are shopping for a loan?
When you are shopping for a new loan, such as for a home or a car, your information may be sent to multiple lenders to try to find you the best rates and loan terms. You will see a separate inquiry on your credit report from each of these lenders, but your credit score won't be penalized for each one. Most credit scores will count multiple inquires for mortgage or auto loans as one if they are made within a certain period of time (14-30 days). Some scores do the same for other types of lending.
When you request credit limit increase, is that a hard inquiry too?
Possibly. It depends on the lender and their policy for how they treat that request. Some lenders may treat it as an application for new credit or additional credit and require a new credit report be accessed, which will then display as a hard inquiry. Others may approve the request without pulling your credit report or do what's called an "account review," which will appear on your report as a soft inquiry seen only by you. If you are concerned, it's best to ask your lender before applying for a higher credit limit.
Improving Your Credit Score
Generally speaking, the stronger your credit history and credit scores, the less you need to worry about the impact from a single inquiry. If your credit scores are marginal and you are looking to improve them, here are some things you can do:
- Make all payments on time. Your payment history is the biggest factor in your credit scores. The best thing you can do for your scores is to make sure every payment is on time and to bring any past due accounts current.
- Keep your credit card balances low. Your utilization rate is also an important factor in credit scores. The lower your balances on revolving accounts, the lower your utilization rate will be. Low utilization rates are good for credit scores.
- Sign up for Experian Boost™† . Experian offers a free tool called Experian Boost that can help you increase your FICO scores instantly by giving Experian permission to link to your bank account and add your monthly utility and cell phone payments to your credit report. Signing up is fast and easy, and you'll get your new credit score right away.
Thanks for asking,
Jennifer White, Consumer Education Specialist
This question came from a recent Periscope session we hosted.
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