A hard inquiry, also known as a hard pull or hard credit check, occurs when a lender, financial institution, or other entity checks a borrower’s full credit report as part of a decision-making process. This happens typically in situations involving applications for credit cards, loans, mortgages, or other credit-based services. Unlike soft inquiries, which do not affect credit scores, hard inquiries can have an impact on the borrower’s credit score.
How Hard Inquiries Work
A hard inquiry is initiated when a potential creditor requests access to a borrower’s comprehensive credit data. This request is recorded on the individual’s credit report and becomes visible to other potential lenders, serving as an indicator of new credit activity.
Types of Hard Inquiries
- Credit Card Applications: Submitting an application for a new credit card.
- Loan Applications: Applying for personal, auto, student, or mortgage loans.
- Renting Property: Some landlords perform hard inquiries before approving lease applications.
- Mobile and Utility Services: Certain telecom and utility companies may perform hard pulls before beginning service contracts.
Impact on Credit Score
Hard inquiries can lower a credit score by a few points. The exact impact varies depending on the individual’s overall credit profile. Multiple hard inquiries within a short period can lead to a more significant score reduction, which is why timing and frequency of credit applications are crucial.
Duration of Impact
- Short-Term Effects: The impact of a hard inquiry is typically minimal but more perceptible for individuals with fewer credit accounts.
- Long-Term Effects: Hard inquiries remain on credit reports for two years. The impact of a hard inquiry diminishes over time, becoming less significant as months pass.
Managing Hard Inquiries
- Space Out Applications: Avoid applying for multiple credit products within a short period.
- Check Credit Reports Regularly: Ensure that all hard inquiries recorded are legitimate and dispute any unauthorized ones.
- Consider Soft Inquiry Alternatives: Opt for pre-qualification offers which utilize soft inquiries before committing to a hard pull.
Comparison With Soft Inquiries
Soft Inquiries: These occur when an individual’s credit is checked for non-lending purposes, such as background checks or pre-approved credit offers. They don’t affect credit scores.
Hard Inquiries: Triggered by applications for new credit and can lower credit scores.
Related Terms
- Credit Score: A numerical representation of a person’s creditworthiness, derived from their credit report data.
- Credit Report: A detailed account of an individual’s credit history maintained by credit bureaus.
- Credit Bureau: An agency that collects and provides credit data to lenders and creditors to facilitate informed lending decisions.
Frequently Asked Questions
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Q1: How many points does a hard inquiry typically deduct from a credit score? A: A hard inquiry typically deducts fewer than 5 points, but the exact impact depends on individual credit profiles.
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Q2: Can shopping for loans result in multiple hard inquiries? A: Certain types of loan shopping (like auto or mortgage) within a short timeframe are often treated as a single inquiry by credit scoring models to reduce the negative impact.
References
- Fair Isaac Corporation (FICO). “Understanding Hard Inquiries on Your Credit Report.”
- Consumer Financial Protection Bureau (CFPB). “What is a credit inquiry?”
Summary
A hard inquiry is an important aspect of the credit evaluation process used by lenders to assess a borrower’s creditworthiness. While they can temporarily lower credit scores, managing hard inquiries effectively and understanding their implications can help maintain a healthy credit profile.
