Your credit report is an important factor that affects your financial life. It’s a record of your credit history and helps lenders assess your creditworthiness. One factor that can impact your credit report is the type of credit inquiry that is made. There are two types of credit inquiries: hard inquiries and soft inquiries. In this article, we’ll discuss the impact of hard and soft credit inquiries to a credit report, how they differ, and how to manage them.
- What are Hard and Soft Credit Inquiries?
A hard inquiry occurs when a lender or creditor requests your credit report as part of a credit application. For example, when you apply for a credit card or a loan, the lender will check your credit report to assess your creditworthiness. Hard inquiries are recorded on your credit report and can remain there for up to two years.
A soft inquiry, on the other hand, occurs when a lender or creditor checks your credit report for informational purposes. For example, when you check your own credit report, it’s considered a soft inquiry. Soft inquiries are not recorded on your credit report and do not affect your credit score.
- The Impact of Hard Inquiries to Your Credit Report:
Hard inquiries can have a negative impact on your credit report and credit score. Each hard inquiry can lower your credit score by a few points. This is because hard inquiries indicate that you are actively seeking credit, which can be seen as a sign of financial instability. However, the impact of hard inquiries is usually small and temporary, and your credit score will typically recover within a few months.
It’s important to note that not all hard inquiries are created equal. For example, multiple hard inquiries within a short period of time can have a more significant impact on your credit score than a single hard inquiry. This is because multiple inquiries can indicate that you are applying for credit that you may not be able to afford.
- The Impact of Soft Inquiries to Your Credit Report:
Soft inquiries do not have a negative impact on your credit report or credit score. This is because soft inquiries are not related to credit applications and do not indicate that you are seeking credit. Instead, they are used for informational purposes, such as when you check your own credit report or when a lender pre-approves you for a credit card.
Soft inquiries can also be used by lenders to monitor your credit report for changes. For example, if you have a credit card with a bank, the bank may periodically check your credit report to see if you’ve opened new accounts or have a change in your creditworthiness.
- How to Manage Hard and Soft Inquiries:
Managing hard and soft inquiries is an important part of maintaining a healthy credit report. Here are a few tips:
- Limit the number of hard inquiries: Only apply for credit when you need it and avoid applying for multiple credit cards or loans within a short period of time.
- Monitor your credit report regularly: Check your credit report periodically to make sure there are no errors or inaccuracies that could be affecting your credit score.
- Be aware of soft inquiries: While soft inquiries don’t have a negative impact on your credit report or credit score, it’s still important to monitor them to ensure that no one is checking your credit report without your permission.
- Dispute inaccurate information: If you notice any inaccurate information on your credit report, such as a hard inquiry that you didn’t authorize, you can dispute it with the credit bureau.
In conclusion, hard and soft credit inquiries can have an impact on your credit report and credit score. While hard inquiries can lower your credit score, the impact is usually small and temporary. Soft inquiries do not have a negative impact on your credit report or credit score. It’s important to manage both types of inquiries by limiting the number of hard inquiries, monitoring you’re your credit will ensure your credit score maintains the average needed to make you risk free for creditors to lend to.