If you have ever obtained a copy of your credit report, you’ve noticed the wealth of information about your credit accounts. Payment history – including details about whether payments were on time or late – along with account balances and credit limits and specifics on any company which has inquired about your credit are all contained in a credit report.
A credit inquiry is when another party views your credit report. Not all inquiries have an impact on your overall score – there is a difference between a hard inquiry and a soft inquiry.
Soft inquiries are more common and most frequently occur when a creditor is considering offering you a line of credit but wants to ensure first that you qualify. Have you ever opened the mailbox to find an envelope with an offer of a credit card account inside? That company did a soft inquiry on your credit report.
If you check your own score of if a potential employer checks your credit report those are considered soft credit inquiries, and though they do not impact your score, they will turn up on your report and can be done without your knowledge or consent.
A hard inquiry is when you submit an application for a loan, a mortgage or credit card and you have specified in writing that a creditor can check your credit score.
If you submit to several hard inquiries for a credit in quick succession, your score may be negatively impacted, as this can signal that you are in desperate need of credit.
However, multiple inquiries from a student loan provider, auto or mortgage lender tend to have less of an impact, as companies generally will assume you are shopping around for the best rate.
Though hard inquires remain on your credit report for 24 months, they stop impacting your overall credit score after one year.
While inquiries do impact an individual's credit, they represent only about 10% of your overall credit score. Making payments on time and your overall debt burden have a more significant impact on the health of your credit.
Knowing the difference between soft and hard credit inquiries can help you make smart financial decisions which may make it easier to qualify for the best mortgage rate possible when you’re ready to purchase a home.