Understanding Hard Inquiries on Your Credit Report
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Obtaining your own credit reports will not affect your credit scores
A hard inquiry occurs when a lender or company makes a request to review your credit reports as part of the loan application process
Multiple inquiries for the same type of loan, such as a mortgage, made within a certain period of time generally count as one inquiry
Some consumers are reluctant to check their credit report because they are concerned that doing so may impact their credit score. While pulling your own credit report does result in an inquiry on your credit report, it will not affect your credit score. In fact, knowing what information is in your credit report and checking your credit may help you get in the habit of monitoring your financial accounts.
One of the ways of establishing smart credit behaviour is to understand how inquiries work and what counts as a “hard” inquiry on your credit report.
What is a hard inquiry?
When a lender or company makes a request to review your credit report as part of the loan application process, that request is recorded on your credit report as a hard inquiry, and it usually will impact your credit score. This is different from a “soft” inquiry, which can result when you check your own credit or when a promotional credit card offer is generated. Soft inquiries typically do not impact your credit score.
Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for up to 36 months. Depending on your unique credit history, they could indicate different things to different lenders.
Recent hard inquiries on your credit report tell a lender that you are currently shopping for new credit. This may be meaningful to a potential lender when assessing your creditworthiness.
Exceptions to the impact on your credit score
If you're shopping for a new auto or mortgage loan, the multiple inquiries are generally counted as one inquiry.
The timeframes vary for these exceptions. All new auto or mortgage loan inquiries will show on the credit file; however, only one of the inquiries within a specified window of time will impact your credit score. Depending on the credit scoring model being used, the window of time varies from 14 days up to 45 days.
This exception does not apply to credit cards or when you apply for several credit cards at once.
Plan before shopping for a loan
Before shopping for a loan, it's always smart to proactively plan your finances.
First, learn whether the type of credit you're applying for can have its hard inquiries treated as a single inquiry. If so, determine the applicable timeframe. Then you can plan your shopping period, accordingly.
Second, you may also want to check your credit before getting quotes to understand what information is reported in your credit file. You can request a free credit report from each of the two nationwide credit reporting agencies by visiting their websites.
If you're worried about the effect that multiple hard inquiries may have on your credit file, it may be tempting to accept an offer early rather than allow multiple hard inquiries on your credit. However, consider your individual situation carefully before cutting your shopping period short. In many cases, the impact hard inquiries have on your credit score from shopping around will likely be minimal compared to the long term benefits of finding a loan with a low interest rate.
The more informed you are about what happens when you apply for a loan, the better you can prepare for the process. Making a plan for how you will manage hard inquiries now, before you start shopping, may help you prepare for any impact they might have on your credit score.