The Basics of Credit Inquiries
In brief, credit inquiries occur when a lender inspects your credit report. This typically takes place when you apply for credit such as a loan, credit card, or mortgage. There are two types of inquiries to consider: hard inquiries and soft inquiries.
Hard Inquiries VS Soft Inquiries: What’s the Difference?
Hard inquiries occur when you apply for new credit. They can slightly lower your credit score and may remain on your credit report for two years. Soft inquiries, on the other hand, do not affect your credit score and are not visible to potential lenders. They often happen without you even knowing, such as when you check your own credit score or when a company preapproves you for a credit card or loan.
How Credit Inquiries Affect Your Credit Score
Initially, hard inquiries may decrease your credit score slightly. However, their impact tends to lessen over time. Yet, having too many hard inquiries on your credit report can cause lenders to believe that you are a high-risk borrower, leading to potential loan denials or higher interest rates.
Tips to Limit the Number of Credit Inquiries
Limiting the number of hard inquiries can help maintain your credit score. Always ask whether a credit check is necessary before applying for a new line of credit. Furthermore, try to limit the number of credit applications you submit in a short span of time.
Recovering from Negative Impact of Hard Inquiries
If your credit score has been impacted by numerous hard inquiries, there are measures you can take to recover. These include consistently making your credit payments on time, keeping your credit usage low, and not accumulating more debt while you improve your credit score.
What to Do If an Inquiry is Unauthorized
On occasion, an unauthorized hard inquiry may appear on your credit report. If you see one, you can file a dispute with the credit bureau. It’s essential to keep an eye on your credit report to identify any potential errors or fraudulent activity.
