How do inquiries (hard and soft) affect my credit score?

Credit inquiries, also known as credit checks or credit pulls, can have an impact on your credit scores, but the impact varies depending on the type of inquiry. Here's a breakdown of the different types of inquiries and their effects on credit scores:

1. Soft Inquiries (No Impact on Credit Scores):

• Soft inquiries occur when you or a company checks your credit report for non-lending purposes. These inquiries do not affect your credit scores and are not visible to creditors or lenders. Common examples include:

  • Checking your own credit report (e.g., for monitoring purposes).
  • Pre-approval or pre-qualification checks by lenders.
  • Background checks by employers.
  • Insurance companies reviewing your credit for underwriting.

2. Hard Inquiries (Impact on Credit Scores):

• Hard inquiries occur when a creditor or lender checks your credit report as part of a credit application process. These inquiries can have a temporary impact on your credit scores. The impact depends on several factors:

  • Number of Inquiries: Multiple hard inquiries within a short time can have a more significant impact. This is because it may indicate that you're actively seeking credit, which can be seen as a higher risk.

  • Type of Credit Applied For: Different types of credit (e.g., auto loans, credit cards, mortgages) may have varying effects on your scores.

  • Credit History: The impact of hard inquiries is often more significant for individuals with shorter credit histories.

  • Credit Score Model: Different credit score models may treat inquiries differently. FICO scores, for example, typically group similar inquiries made within a short window (e.g., 30 days) for certain types of loans (e.g., auto loans) to minimize their impact.

3. Rate Shopping Protections (Minimizing Impact):

• Many credit scoring models consider multiple inquiries for the same type of credit within a short period (often around 30 days) as a single inquiry. This is known as "rate shopping" protection. It allows consumers to compare loan offers without suffering a severe impact on their credit scores.

Tips for Navigating Credit Inquiries:

• Be mindful of hard inquiries, especially if you plan to apply for a significant loan like a mortgage or auto loan. Try to limit applying for credit within a short time frame.

• If you're rate shopping for a specific type of loan, try to do your loan applications within a relatively short time period to minimize the impact on your credit score.

• Check your credit reports regularly to ensure that all inquiries are accurate and authorized. Dispute any unauthorized or inaccurate inquiries.

• Prioritize responsible credit management, such as making on-time payments and keeping credit card balances low, as these factors have a more significant and lasting impact on your credit scores than inquiries.

In summary, while credit inquiries can have a temporary impact on your credit scores, they are just one factor among many. Responsible credit management and monitoring your credit reports for accuracy are essential steps in maintaining and improving your creditworthiness over time.