Hard Inquiry

Hard InquiryWhen you apply for credit, you authorize lenders and creditors to ask or “inquire” about your credit information with a credit bureau. This registers as a hard inquiry on your credit report, and everyone who pulls your credit report can see that you are looking for new credit.

Hard inquiries include credit checks when you’ve applied for an auto loan, mortgage or credit card or any other loan. All credit inquiries (hard and soft) are listed in your “Inquiry information” section of your credit report.

Only hard inquiry affects your credit score. Credit inquiries contribute 10% to your FICO score, and the actual effect a credit inquiry may have on you FICO score depends on the following factors:

  • The number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
  • Number of recent hard credit inquiries.
  • Time since recent account opening(s), by type of account.
  • Time since credit inquiry (ies).

This means that for most people, a single hard inquiry usually take less than five points off their FICO score. However, hard inquiries can have a greater impact for those with a “thin file”, i.e. only few accounts or a short credit history.

Credit inquiries have a relatively short life cycle. After 6 months or so the inquiries effect is very minimal, and after 1 year they are no longer factored into the FICO formula. They will continue to show up on your credit report for two years, after which they are dropped.

Hard inquiries and rate shopping
FICO score has a build in mechanism that allow you to do rate shopping without impacting your score. The company the developed the FICO score acknowledge the importance of rate shopping, and have come up with this set of rules:

  1. FICO score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. This means that no matter how many creditors you’ve authorized to access your credit information – it won’t affect your credit score for 30 days.
  2. After the 30 days are gone – multiple hard inquiries made within a period of 14 days (in the old version of FICO) or 45 days (in the newer version) are considered as a single hard inquiry.

See soft inquiry for more information.

Tags: , , , ,