What Is a Hard Inquiry and How Does It Affect Credit?

What Is a Hard Inquiry and How Does It Affect Credit? article image.

A hard inquiry, or a "hard pull," occurs when you apply for a new line of credit, such as a credit card or loan. It means that a creditor has requested to look at your credit file to determine how much risk you pose as a borrower.

Hard inquiries show up on your credit report and can affect your credit score. So it's important to understand when they happen, how they'll impact you and why it's best to keep them to a minimum. Here's what you need to know about hard inquiries.

What Are Inquiries on Your Credit Report?

Anytime you seek credit from a lender or credit card issuer, that organization will want to see your track record as a borrower. Your past and current financial behavior, such as payment history and balances on loans and credit cards, helps lenders decide whether to work with you.

Lenders could interpret several missed bill payments, for instance, as a sign that you're likely to miss a payment again in the future. That could lead to you getting denied for a loan or being charged higher interest rates. To get the information it needs, the lender must request your credit file from the credit bureaus, and that results in a hard inquiry. That inquiry, in turn, will appear on your credit report.

In contrast, a soft inquiry occurs when you check your own credit, for instance, or when a company wishes to prequalify you for a loan offer, but you haven't yet submitted a full application. Soft inquiries do not impact your credit score.

How Do Hard Inquiries Affect Your Credit Score?

Hard inquiries have a negative impact on your credit score, in the short term at least. While a hard inquiry will stay on your credit report for two years, it will usually only impact your credit for a few months. Too many hard inquiries in a short time could make it look like you're seeking loans and credit cards that you may not be able to pay back.

There are many factors that contribute to your credit score, however. The most important are payment history—which accounts for 35% of your FICO® Score —and credit utilization, or the amount of available credit you're using, which makes up 30%. Applications for new credit account for just 10% of your score, according to FICO, so a hard inquiry won't necessarily make a major impact.

There are times when a hard inquiry is unavoidable, such as when you're applying for a mortgage or an auto loan. In these cases the credit bureaus recognize that you might submit applications to multiple lenders for one loan to compare rates.

As a result, you generally won't be penalized for several inquiries appearing on your credit report for one loan type if they're made within a 14- to 45-day period. On the other hand, applying for multiple credit cards and a personal loan in one week may be a red flag that you're seeking credit you can't afford. These will not be treated as one inquiry.

How Long Does a Hard Inquiry Last?

A hard inquiry will stay on your credit report for two years. While lenders can see all inquiries made during that time, the inquiries only directly affect your credit score for one year at most.

That means that when you apply for a credit card, for instance, you may initially see a small drop in your credit score. Over time, that impact will diminish, and with responsible credit behavior, you'll recover from the drop fairly quickly.

To keep your score strong, apply only for the credit you truly need. If you plan to apply for a major new credit product, like a mortgage, in the next several months, experts say you should avoid applications for other new credit to keep your score as high as possible.

The Bottom Line

Hard inquiries are an inevitable part of your credit file, but they should occur sparingly—and strategically, when you're comparing rates on financial products.

To keep an eye on hard inquiries' impact on your credit, monitor your credit score regularly. Many banks and lenders offer free score monitoring to customers; resources like Experian's free credit score tool provide access to your FICO® Score too.

In addition, check your credit report regularly to make sure all of the hard inquiries included are ones you've made. If you see any inquiries you don't recognize, you can dispute these errors with each of the credit bureaus. As an attentive consumer, you can make sure hard inquiries affect your score as little as possible, letting you access the financial products that can help you achieve your goals.

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