How Much Does A Hard Inquiry Affect Your Credit Score?
Before granting you a credit card, personal loan, auto loan, or mortgage you will go through a credit check to determine your credit rating. This is known as a hard inquiry. They can affect credit score and this is why it is good to know how much they affect it and what should be done to minimize this effect.
What is a Hard Inquiry?
A hard inquiry is the result of a credit application procedure credit report and score pulled by a credit provider. Your credit score may suffer depending on it shown on your credit report profile. Although the lender who asked for the report and you both may clearly identify hard queries, other creditors usually cannot see them. Other lenders cannot see your credit record and observe a hard inquiry has been done.
You may make as many as you want; soft questions have no bearing on your score. These include when you get your credit report and score or when an employer or possible landlord views your credit record.
How Do Hard Inquiries Affect Your Credit Score and How Long Do They Last?
However, one hard inquiry does not harm as much and the problem only arises when there are several hard inquiries made within a relatively short space of time. In general, inquiries remain in your credit report for 2 years but are reflected in your score for a shorter period.
Here is how long hard inquiries remain on your credit report and impact your score.
- Credit Report: 2 years
- FICO Score: 1 year
- VantageScore: 2 years
This means that although all inquiries are reported on your credit report file for 2 years, they affect your FICO Score for only one year. In FICO Scores, old inquiries are eliminated from the computation of a credit score. In the case of VantageScores, there are factors the credit inquiries that occurred within the last two years are considered.
How Does One Hard Inquiry Impact Your Credit Score?
In most cases, a single hard credit check only impacts your credit score for a maximum of five points. However, the amount of impact differs between credit scoring models.
FICO Score: 1-5 points VantageScore: 5-10 points
This minimal impact from one hard inquiry will often recover in just a few months. This is so because if positive payment records are enhanced over time, then any harm normally fades away. However, with FICO Scores the effect reduces within a year.
The problem is much bigger when several new hard inquiries are reported over a short period. It may suggest that you are struggling financially or are going deeper into credit to meet your needs. This makes it seem as though one is applying for new credit when one has several hard inquiries, making one’s credit score considered a high risk by lenders.
What to Know About Multiple Hard Inquiries?
If you have rate-shopped for auto, mortgage, or student loan refinancing within a short period, some of the leading credit bureaus have a grace period. As opposed to lowering your score for each inquiry, several inquiries for these sorts of loans within the 14-45-day period are considered as one inquiry only. This will ensure that your score does not reduce when you are in the process of comparing different loan products.
Still, regular applications for credit cards or personal loans within a few months get little particular attention. Each one of these questions will be handled separately toward the score. Generally speaking, the research shows that queries made more recently and more often help to lower the credit score.
FICO estimates here the possible decline in your score following many queries.
1 inquiry: 0-5 points 2 inquiries: 5-10 points 3 inquiries: 10-15 points 4 inquiries: 15-20 points 5 inquiries: 20-30 points 6 inquiries: 25-45 points
From the foregoing, even one or two from typical credit applications are not too much damaging. But if additional questions come in, it may affect your credit score in greater ways.
How Long Does Multiple Hard Inquiries Affect My Credit Score?
The effects of multiple hard credit checks are usually worse in the first six to Twelve months.
Under FICO Scores, all the credit inquiries that occurred in the last 12 months are considered separately and will affect the score. Inquiries start to have a lower effect after 12 months and are removed from the credit report after 24 months.
In the case of VantageScores, the credit inquiries accepted are those that are up to 24 months old. However, inquiries that are older than 12 months have a lesser negative effect than inquiries that are fresher.
In conclusion, multiple hard inquiries are expected to have the biggest effect on credit scores for the first year. Additional inquiries won’t count as much in the next 12-24 months and will not count at all after that.
Ways of Reducing the Consequences of Hard Inquiries
Certain factors such as applying for new credit cause hard inquiries which can lower your score in the short run. However, there are some steps you can take to reduce the negative effects.
- When making credit applications, wait for at least three months between each application. This makes it possible to wash off any impact that your recent inquiries may have had before reapplying.
- Shop loan rates within a short period, for instance, 14-45 days. Mortgages, auto loans, and student loans are considered ‘multiple inquiries’ if there is more than one interest rate check.
- Avoid applying for multiple loans with a frequency of more than five inquiries within one year. Any more than that will reduce your score to an intolerable level if applied in a sequence of consecutive tests.
- Do not open many credit accounts at the same time or within a short period. New accounts reduce the overall average account age that is used in credit scoring.
- Keep credit card balances low and maintain the regular payment of all debts without missing any payments. This way, you can offset the impact that inquiries have on your score in the short term.
The effect of a solitary hard credit check is normally negligible and the applicants should refrain from avoiding credit because of these small blows. It is, however, important to be conscious of how different serial inquiries over months add up and reduce the credit score for a while by a greater margin than the reduction that results from the individual inquiry. Thus, it is always wise to keep an eye on your total credit inquiries and space out your loan applications.
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