Maintaining a good personal credit score can open the doors to a world of new financing possibilities. Whether you’re looking to obtain a mortgage, a car loan or even a business loan, lenders may evaluate your personal credit score. Late payments, however, aren’t the only thing that can negatively affect your personal score. Running too many credit inquiries can have a similar impact but to a lesser degree. How will credit inquiries affect your personal credit score exactly?
How Credit Inquiries Affect Your Personal Credit Score
What Is a Credit Inquiry?
Also known as a credit check, a credit inquiry is a process in which a lender or other individual requests information about your personal credit from one or more credit bureaus. When you apply for a loan, the lender may run a credit inquiry. The lender can request a copy of your credit score from one or more credit bureaus, after which the lender can decide whether to approve your application for a loan.
Hard vs Soft Credit Inquiry
Credit inquiries can be classified as either hard or soft. Hard credit inquiries are those initiated by lenders for the purpose of deciding whether to loan you money or extend you credit. Soft credit inquiries, on the other hand, are those initiated for other, non-finance-related reasons.
Hard credit inquiries always require your permission. Before running a hard credit inquiry, the lender must obtain your permission. Lenders can’t run a hard credit inquiry without your explicit permission. Soft credit inquiries are different in the sense that they don’t require your permission. They contain the same information as hard credit inquiries, but lenders can run soft credit inquiries without your permission.
Only Hard Inquiries Affect Your Credit Score
Not all types of credit inquiries will affect your credit score. Rather, only hard credit inquiries will affect it. According to Experian, hard credit inquiries can stay on your personal credit report for up to two years. With that said, most hard credit inquiries will only have a negative impact on your personal score for about one year. After a year has passed, your personal credit score should return to normal. Hard credit inquiries typically result in a drop of about 5 to 10 credit score points for up to one year.
You don’t have to worry about soft credit inquiries bringing down your personal credit score. For soft credit inquiries that don’t require your permission, your credit score will remain unchanged. For hard credit inquiries, though, you may notice a temporary drop.
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