We just wrapped up the Christmas holidays and I know many of you probably capitalized on those amazing credit cards offers you’ve been receiving. If the credit cards offers didn’t interest you, more likely those deals for a new vehicle caught your eyes. Either way, you went about filling out applications for credit or anytime you apply for credit they’ll pull your credit. A credit inquiry is a notation that goes on your credit report every time your credit report is accessed by anyone with a “permissible purpose,” as defined by the Fair Credit Reporting Act. Inquiries remain on a credit report for two years, and generally fall into two categories: hard and soft inquiries. Below are the differences between the two kinds of inquiries you can get:
First of all, hard inquiries are the ones that affect your credit score, but it’s usually the ones that have been on your credit for a year. A hard inquiry occurs when an individual applies for any type of credit, such as a mortgage, credit card or auto loan. The reason a hard inquiry may lower an individual’s credit score is because someone who has recently applied for new credit is seen as a potentially riskier borrower. To keep up with these inquiries there are several websites that offer you a chance to view your credit for free like Credit.com, Credit Karma and Credit Sesame. The application for new credit indicates either that the individual may need credit as a result of a financial setback, or that the acquisition of new debt by the borrower makes him or her higher lending risk. However, credit scoring formulas typically take into account that an individual might be shopping around for the best rate, so when multiple inquiries are made for the same type of credit in a short period, such as multiple mortgage applications, the individual’s credit score is not dinged repeatedly.
Soft inquiries, on the other hand, aren’t generated by shopping for credit and they do not affect your scores. For example, if a lender sends you a pre-approved credit offer, that inquiry is called a “promotional” inquiry and it’s a soft inquiry. And when you check your own credit score, the same thing applies. Similarly, if you already have a credit card or loan with a lender, it may review your account from time to time and the account review inquiry that results doesn’t show up when lenders request your reports or scores.