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how does a hard inquiry affect your credit score?

how does a hard inquiry affect your credit score?

December 1, 2021
5 min read
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if you download a recent copy of your credit report to review it and find something called a 'hard inquiry, it might be because you applied for credit within the last two years. the new credit can be in the form of a new credit card or a loan. you should know that a hard inquiry can damage your credit score and it may stay there on your credit report for a longer time than you expected. we are here to help you know all about hard inquiry and what it means for your credit report and credit score. 

what is a hard inquiry?

when you apply for any type of loan or a credit card, you give permission to the financial institution to check your credit report to determine your 'creditworthiness'. the potential lenders check credit reports to see how likely you are to pay back the money you borrowed. a positive credit history demonstrates your responsible financial behavior and the lenders would be willing to provide you with that new credit card or loan.

when a financial institution or bank pulls your credit report from one of the four main credit bureaus (Experian, Equifax, Transunion CIBIL, or CRIF Highmark), this is considered a hard inquiry. every time a hard inquiry hits your credit report, your credit score drops a few points, regardless of whether you get the credit approval or not. on the other hand, if you check your credit report yourself or apply for a prequalification, it's considered a soft inquiry and does not hurt your credit score. 

what triggers a hard inquiry on your credit report?

you would see a hard inquiry listed on your credit report if you have:

  • applied for a new credit card in the last two years 
  • applied for a fresh loan such as personal loan, car loan, home loan, education loan, mortgage loan, etc. 
  • applied for a balance transfer card or loan 
  • applied for a business credit card - applied for a credit limit increase

how a hard inquiry impacts your credit score

although hard inquiries stay on your credit report for over two years, the credit bureaus only consider inquiries from the last 12 months when calculating your credit score. your credit history is also an important factor in determining how much a hard inquiry would impact your credit score. if you have a healthy credit history and credit score before applying for fresh credit, then any new hard inquiry on your credit report may cause very little damage to your credit score or even none at all.

it has been seen that hard inquiries may cause much harm to the credit scores of individuals with a short credit history or a few credit accounts. so, if you are someone who's just starting to build their credit, a hard inquiry can do severe damage to your credit score than it would for someone who has a long credit history. but it does not mean that you stay away from applying for credit. it’s fine to have a few inquiries periodically as it shows that you are trying to build credit but make sure you don’t apply for too many credits in a short amount of time.

what does a lender think when they see a hard inquiry?

hard inquiries are considered 'less influential when it comes to calculating credit scores. but they play a significant role when it comes to assessing your potential risk of paying your debt on time.

this is why the lenders always pull your credit report to see how creditworthy you are. if you have too many hard inquiries on your credit report, it shows that you may be financially stressed and may pose a bigger risk for borrowing in the future. however, lenders do consider other factors such as your income and payment history before approving or declining your credit application. 

how to minimize the number of hard inquiries you have?

hard inquiries are not always bad, even though they may cause a temporary dip in your credit scores. however, it's better to know how to minimize the number of hard inquiries on your credit report. here are a few things you should keep in mind to minimize hard inquiries on your credit report: 

  • do not apply for too many credit cards within a short span of time. consider applying for a new credit card every six months.
  • only apply for a credit card that fits your financial requirement. you don't want to have too many hard inquiries on cards you don’t need.
  • check your credit score and credit report beforehand to make sure you meet the eligibility before applying for fresh credit. 
  • consider applying for a prequalification to access your likelihood of qualifying for credit without damaging your credit score.

in conclusion

hard inquiries on your credit report are not something you should stress about. it can happen due to various reasons as mentioned below and it's not always a bad thing. it's okay if your credit score goes down temporarily, you can always bounce it back in a few months by using your card responsibly.

however, you should make sure you do not apply for too many credits at once and rack up a bunch of hard inquiries. and most importantly, pay your bills and debts on time and in full to maintain a good credit score.

to check your credit report and credit score for free on CRED.