How Much Does A Hard Credit Inquiry Affect Your Score?

Whenever you apply for a credit card an auto loan a personal loan or even a mortgage, the lending agent will pull your credit report for which he will be making a hard inquiry on your credit. Hard inquiries enable credit creators to assess and analyze your credit information and credit score about your application and the interest rate in case your application is successful.

Even though credit inquiries help the lender to know more about the borrower, hard inquiries have the potential to harm your credit score if several of them are made over a short period. That is why many credit inquiries within a short period are damaging, as they suggest possible credit problems or credit overextension. But just how much does a hard credit inquiry impact your credit score? Let it be, let’s take a closer look.

What Happens to Your Scores When There Is a Hard Inquiry?

FICO, a credit scoring agency, has it that a single hard credit check can reduce your score by as much as 5 points. And so for instance, if your credit score is 680, it might go down to 675 after one inquiry has been made. However, the reduction by 5 points may not sound significant since being closer to the 700s is not much of a difference, but for those with a score closer to the lower end of the credit range, every point makes a difference.

The effect of having more than one hard inquiry is cumulative – each credit check lowers your score by another 2-3 points. That is why, two new inquiries can lower the credit score by 10 points or more, three – by 12-14 points, and so on.

However, merely the number of inquiries will not affect how much your score decreases; rather, the fact that many inquiries have occurred within a short period is an indication of credit risk to the potential lenders and hence will harm the score. Routine consumer purchasing behavior, including rate shopping for an auto or mortgage loan, is comprehensible and does not significantly affect scores.

How Long do Inquiries Affect Your Credit?

However, hard credit inquiries are not very detrimental to your score and their effects reduce with time. FICO says that inquiries can cause the score to drop for as long as 12 months or more, though the greatest losses are likely to happen in the initial 6 months.

The score that you should expect to drop significantly is the one that you get within the first month after the inquiry. After that first decline, your score should start to rise gradually every month and get back to numbers close to the starting one in about a year.

The recovery rate also varies depending on one’s initial credit score – the higher the credit score at the beginning, the smaller the effect of inquiries in the long run. People with good credit status are usually back on track within a few months. However, if you have a fair credit rating, then it can still take some time to regain those lost points. Even opening new accounts during this period can continue this as well.

Ways To Lessen The Effects Of A Hard Inquiry

If you need to finance a large purchase or open a new credit account, here are some tips to minimize the impact of hard inquiries.

• Do not apply for credit within three months of the other credit application. This can help your score recover before applying for new credit again.
• The number of inquiries should not exceed five in any one year. Anything beyond that is likely to cause people to take notice.
• Apply to multiple places for rates at one time, not over time. Inquiries made within a 30-45 day period for auto, mortgage, and student loans are considered as one inquiry.
• Request a lower interest rate or a larger credit line from your current lender before applying for new accounts. First, try to negotiate better rates from them.
• Keep the credit utilization ratio low and pay all bills every month as your inquiries are there. It is important to understand that credit score reduction can be counterbalanced by good credit management.
• Sign up for free credit monitoring to monitor your FICO score on a monthly or weekly basis. This means that it enables you to have an insight into the actual effect that inquiries have on your credit profile.
• Do not apply if you will apply for a major purchase shortly that will depend on good credit, such as a home loan, car, or boat loan. A high flow of new inquiries towards the proposal during major financing can harm loan conditions and interest rates.

The Bottom Line

A hard credit inquiry made only once will not affect the score significantly provided you maintain a good score in credit management. However, too many inquiries in a close time may have a cumulative effect that in turn leads to people with good credit scores recovering their points soon after inquiries, while those with bad scores take a long time to recover.

To minimize any dip in your score, you can avoid applying for credit often or applying for all at once, comparing rates wisely, and embracing other good financial practices. The most important steps include: Consistently reviewing your credit report and only applying for credit when it is necessary. Thus, inquiries do not have to dramatize your credit profile if you manage it wisely in the long run.

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