How credit inquiries affect your score

Credit inquiries, or credit checks, occur when a financial institution reviews your credit report in connection with applications for loans, mortgages, credit cards, or other financial products. As such, an inquiry may appear on your report each time you apply for credit. There are two main types of credit inquiries: soft inquiries and hard inquiries. Each type has a different impact on your credit score.

Soft inquiry

A soft credit inquiry happens when someone accesses your report for informational purposes, without a credit application in progress. Such as when you check your own score, a potential employer checks your credit history, or a financial institution pre-screens you for a credit offer. These inquiries do not affect your credit score and are visible only to you and the entity that made the inquiry, not to other financial institutions. They are helpful for monitoring your credit history and exploring financial options without negatively affecting your credit score. On occasion, some institutions use the soft inquiry to validate an applicant’s eligibility for credit product offers before submitting a formal application.

Hard inquiry

A hard credit inquiry happens when you complete an application for a loan, credit card, or other form of financing and authorize the financial institution to access your credit report. These inquiries are visible to other lenders and can impact your credit score, especially if multiple inquiries are made in a short period. They remain on the report for up to two years.

Impact on credit history

The impact on your credit history depends on the type of inquiry and how often inquiries are made. A soft inquiry has no impact on your credit score. A hard inquiry generally has an effect and can lower your credit score. This impact decreases with time and good management of your credit accounts. To protect your credit, it is important to be careful with the number of inquiries requested.

Here are some tips:

• Limit credit applications:
  • Avoid applying for multiple credit products within a short period. A single hard inquiry is usually not a problem. Still, several inquiries in a short period can be a red flag, as they may indicate financial difficulties or an over-reliance on credit.
  • Credit scoring models treat several similar inquiries made over a short period as one.
  • Look for alternatives with institutions that offer deals without affecting your credit score, ensuring they use a soft credit check.
• Check your credit report regularly:
  • Request your credit report annually to ensure there are no unauthorized credit inquiries, which can indicate identity theft.
• Keep a good payment history:
  • Your payment history is the most crucial factor in your credit score. Paying your debts on time and keeping low balances on your credit cards helps strengthen your credit score, which can mitigate the impact of inquiries.

Some financial institutions allow you to check offers through a soft inquiry without affecting your credit. If you accept the offer, then it will become a hard inquiry on your credit report.

Understanding the types of credit inquiries and how they affect your credit score and history is important for maintaining healthy credit. Handling your credit inquiries responsibly can also help you get better terms and more favorable interest rates in the future.

 

Sources:

Hard vs Soft Inquiries: Different Credit Checks | TransUnion

Hard Inquiry vs. Soft Inquiry: What’s the Difference?

Tipos de consultas de crédito: definición e importancia

 The content of this material is provided for informational and educational purposes only, and may not apply to all situations. Its contents should not be considered as advice of any kind, nor as a suggestion to take (or inhibit) any particular action. The information and general descriptions included are designed to help you understand some of the factors you should generally consider in evaluating the relevance of any financial strategy. It does not include or take into account all factors that may be relevant to your individual financial needs. By providing this information, we assume that you are able to evaluate this information and exercise your independent judgment.