Every time you apply for any kind of credit including a credit card, car loan, home loan, even a cell phone credit check, the company or the credit provider is likely to pull your credit report for a hard credit check. This enables them to assess your creditworthiness and whether to extend credit to you or not.
In fact, hard inquiries can negatively affect your credit score, but not significantly. It is important to note that most cardholders are likely to see their credit score drop by five points or less when they undergo a hard inquiry. But if the credit score was already low to begin with, then it will decline by a slightly bigger margin. Here is a more detailed breakdown:Here is a more detailed breakdown:
Effect on Individuals with Superb Credit Scores of 740 and Above For those with credit score of 740 and above, this kind of inquiry tend to reduce the score by 3 to 5 points per inquiry. But since it is so small and unless one has numerous requests in a comparatively short time span, this small drop won’t affect your qualification for new credit and good interest rates. Credit providers are also aware that consumers with good credit scores like to rate search for new lending terms from time to time. Most lenders are fine with one or two inquiries made within a timespan of several months.
Effects on Credit Score Holders: 650 to 739 If you are in the good credit score range of 650 to 739, you might experience a 5 or so points decrease for each hard inquiry. Although five points may not sound like much, for individuals who find themselves in this range, several hard inquiries could mean going below some credit cutoff values. For this reason, you may be required to pay higher interest rates or your application may not be approved at all. It is advisable to limit the number of application inquires to those you are sure will be approved and the ones you need.
Effect on Those with a Fair or Poor Credit Rating Below 650 The credit scores of those with fair or poor credit ratings are most likely to be impacted the most as per a hard inquiry. Industry averages for those with scores below 650 are between eight to ten points per hard credit inquiry. Couple of inquiries could reduce the score of marginal applicant to the level of outright rejection for new credit. Hard inquiries can also move you to even higher risk credit tiers that come with higher interest rates. Consumers with lower credit should be very careful and selective when applying for any credit accounts. This means that other factors apart from the score itself play a role in the decisions that are made on lending.
How Long Does It Take for Credit Inquiries to Affect Your Credit Score? However, the good news is that such hard inquiries do not last on your credit report for an eternity. They will only ding your score temporarily but while searching for potential lenders, these will be seen. Here is how long they stick around:Here is how long they stick around:
In most cases, most inquiries are removed from the Equifax credit report after one year. They are then deleted by TransUnion after two years have elapsed. In the case of FICO credit reports and scores, inquiries can harm you for up to one year, but they can take up to two years to be removed from your credit report.
These will after some time reduce the hard inquiries and will no longer affect your credit score calculations. However, the average age of your accounts will still remain the same even after it is no longer affected by inquiries.
How to Prevent Your Credit Score from being Affected by Inquiries
Even saving a few points here and there is not a problem for those who have good credit, but avoiding inquiries are wise. Low Volume Shopping refers to rate shopping for a single loan within a focused couple week period, which only counts as one inquiry, so make use of that. Here are some other strategies to avoid extra hits on your credit:Here are some other strategies to avoid extra hits on your credit:
Always Check for Prequalification Options: With most lenders, you can use a soft credit check that does not harm your score as a way of testing your eligibility before going through with a full application.
Review Your Credit Report First: By looking at what is listed in your credit report you are able to determine when to apply for credit as this will help you avoid too many inquiries.
Limit Random Unneeded Applications: Do not apply for any accounts you will not need or have any chances of being approved due to your credit rating or income level. Excessive impulse to apply for more credit accounts than necessary can easily reduce your score a lot.
Monitor Your Credit: The key to this method is free credit reports and score tracking to monitor the effects of inquiries and the initial score before reapplying.
Ask Creditors to Remove Errors: If a hard credit check was done without your permission you can ask credit bureaus to remove it in order to prevent score decreases.
Boost Your Credit: Actions that counter inquiry related drops are paying bills on time, reducing balances, correcting errors etc. to bring your score back up.
The Bottom Line Although it is widely believed that multiple hard inquiries made in a short time will contribute to credit score decrease, 1 or 2 inquiries will not harm even those with good credit. So long as you do not intend to apply for several new loans in the next couple of months, there is no reason why one more credit application should affect your score. As long as you maintain good credit habits and pay attention to your credit activity to minimize the occurrences, they can offset the small impacts.
