It’s definitely a smart move to check your credit report at regular intervals. However, many people believe that doing so would impact their credit scores adversely as it will pull an inquiry. Although, little did they know that there are basically two types of inquiries – hard and soft, and both have different impression on the credit report. Your credit report is divided into slices and every slice represents a different segment of financial standing. Credit inquiry is one such factor that is mentioned on the report and contributes 10% of the overall scores.
Let’s start from the basics to have a deeper understanding of the topic.
What is soft inquiry?
First of all, this type of inquiry has no impact on your credit score. Soft inquiries are pulled when you check a potential lender or creditor checks your financial performance so far to provide you pre-approved loan and credit card offers, or when you check the report for your own financial assessment. These inquiries neither appears on the credit report, nor it impact the credit score.
Soft inquiries generally occur without your knowledge or consent. So, if you ever receive pre-approved credit offer, remember that some potential lenders have checked past financial behavior and had pulled a soft inquiry. The same goes for mortgage lenders, insurance companies, and potential employers.
Insurance companies pull a soft inquiry to determine the amount of premiums and to zero-down on the sum assured. On the other hand, potential employers also check for employees’ credit history to see if a candidate is suitable for a respective designation. For example, if an employer is hiring candidates for accounting department, they would pull credit report of the eligible candidates to determine if they can be trusted with the company’s finances.
Hence, one should never be afraid of checking their own credit report for the concerns that it would hit their scores badly. It has been made mandatorily for all the credit bureaus to provide at least one credit report for free in a year.
What is hard inquiry?
Hard inquiries are pulled when you apply for a new line of credit and the lenders check your credit report to determine the creditworthiness. These inquiries are triggered with the consent of an applicant, who is applying for a new loan, credit card, auto loan, student loan, or mortgage loan. Number of frequent hard inquires in a short span of time could hit your scores badly as it would show you as a high-risk borrower, who is credit hungry.
These inquiries could shed 10 to 50 points from the credit scores and could remain for up to 24 months, thus, credit experts suggest to avoid applying for different loans and credits in a short period. Therefore, you should always be careful with your credit behavior and should only apply for a certain loan and credit card when you know you’re perfectly eligible for it. Doing so would save you from unnecessary hard inquiries, while keeping your scores in good range.
However, if you’re checking quotes from different lenders for a single loan (called rate shopping), all inquiries pulled within a period of 45 days would be considered as one inquiry only. Say for example, if you’re shopping for personal loan quotes and all your credit inquiries made within 45 days are related to personal loan, then all your hard inquiries would be counted as one on your credit report.
Examples of hard and soft inquiries:Soft inquiries:
- Personal Credit Checks
- Pre-Approved Credit Offers
- Insurance Applications
- Account Reviews by Current Creditors
- Employment Applications
- Loan Applications (Mortgage, Auto, Student, Personal, etc.)
- Credit Card Applications
- Requests for Credit Limit Increases
- Applications for Lines of Credit
- New Utility Applications
- Collection Agency
- Apartment Rental Applications
What if you don’t recognize hard inquiries on your credit report?
In case a hard inquiry shown on your credit report doesn’t seem to be familiar and raises some suspicion, you can opt for several measures to bring the issue to credit bureau’s notice.
Double check – First of all, check the inquiry section with utmost attention and care and in case you don’t recognize a hard inquiry, do a double check of lender’s name and inquiry details. It often happens that the lender’s name that you’re familiar with shows up differently on the credit report.
Contact the lender – If you’re in doubt that the creditors who pulled hard inquiry have no links with your existing credit accounts, it’s best to get in touch with the creditor directly asking them to rectify the error. It’s always a good idea to make a request in written in order to keep evidences of everything, in case any confusion or conflict occurs in future.
Visit credit bureau – If a creditor is unwilling to solve the issue or rectify the incorrect hard inquiry, you can raise a dispute with your respective credit bureaus asking them to resolve the issue at the earliest. You can either write an email or send a written request regarding the issue.