There are two kinds of inquiries that can occur on your credit report: hard inquiries and soft inquiries. While both types of credit inquiries enable a third party, such as you or a lender, to view your credit report, only a hard inquiry can negatively affect your credit score.
What is a Hard Inquiry?
Hard inquiries occur when a financial institution, such as a lender or credit card issuer, checks your credit report when making a lending decision. For example, hard inquiries commonly take place when a consumer applies for a loan, credit card, or mortgage. You typically have to authorize a hard inquiry. Most important to note, hard inquiries will lower your credit score by a few points and remain on your credit report for two years. As time passes, the damage to your credit score will decrease until the hard inquiry falls off your credit report.
What is a Soft Inquiry?
Soft inquiries occur when a person or company checks your credit report as a background check, such as when a potential employer checks your credit, when you are "pre-approved" for credit card offers, and when you check your own credit score. A soft inquiry can occur without your permission. Soft inquiries may be recorded in your credit report, depending on the credit bureau, but they won't affect your credit score in any way.
One of the biggest misconceptions is that checking your own credit score using companies like Credit Karma will hurt your credit score. This is not the case. You can check your credit score at Credit Karma as often as you like and it will never lower your credit score.
Examples of Hard Versus Soft Inquiries
While there are common examples of which financial actions result in a hard or soft inquiry, here are some lesser-known actions that may incur a credit inquiry.
If you are unsure whether a financial action you are about to make will result in a credit inquiry, ask the financial institution or company. Also, if a financial institution or company informs you that they will be checking your credit, ask them to distinguish whether or not it is a hard or soft inquiry.
Why Hard Inquiries Hurt Your Credit Score
While hard inquiries are necessary for certain financial actions such as applying for a loan or credit card, hard inquiries should be minimized as much as possible. Your credit score is penalized for multiple hard inquiries to encourage consumers not to apply for too much credit at one time. Applying for too much credit may indicate that you are desperate for credit, or that you aren't able to qualify for credit. While one hard inquiry will knock a few points off your credit score, multiple hard inquiries in a short amount of time can cause significant damage to your score.
Keep your hard inquiries to one or two a year. Credit Karma data shows that on average, consumers with lower numbers of hard credit inquiries have higher credit scores.
How to Dispute Hard Credit Inquiries
If a hard inquiry occurred without your permission, check your full credit report at www.AnnualCreditReport.com to see the full details of the inquiry. Then, you can attempt to dispute it.here.
Before applying for credit, take time to build your credit score. With a higher credit score, you'll improve your chance for approval for the financial products you want and at the best terms and rates.
To keep track of hard inquiries, check your score at Credit Karma every month. In addition to providing you with your free credit score, Credit Karma notifies of any changes to your credit report, including any new hard inquiries.