What is a hard inquiry?
A hard inquiry generally occurs when a financial institution such as a lender or credit card issuer, checks your credit report as part of their decision-making process. According to FICO, most people who have one hard credit inquiry will see a reduction in their credit score of less than five points.
For instance, if you apply for a credit card and the credit card issuer requests your credit report and score from Experian, it means you have initiated a credit enquiry. This fact will be noted on your Experian report along with the date, name of the company that requested it, and the type of inquiry.
Note that the only inquiries that count toward your FICO score are the ones resulting from new credit applications. So, pre-approved credit cards don’t count as hard inquiries until you make an actual application for the credit card.
A single inquiry will remain on your account for 24 months. In addition, it will also count against your FICO score and VantageScore for up to a year. This means that too many applications for credit within one year (for example, more than about 4) can become problematic for your credit score because it indicates that you are desperate for new credit, which indicates a high level of risk. Research by FICO has found that people that open several credit accounts within a short period of time represent greater credit risk to lenders.
Making too many applications at once or over a short period of time, could see your credit scores drop significantly. The impact of hard inquiries could be even more significant if you have relatively few credit accounts or a short credit history.
You need to keep in mind that decisions on your applications for credit are not solely based on your credit score. Other factors are considered relevant such as the number of hard inquiries you’ve had in the past two years, even though all of those inquiries may not be factored into your credit scores.
For example, if you have more than 5 hard inquiries within 2 years, some credit card companies will automatically deny your application. But check this out. Let’s say you have had 6 inquiries in 2017 , but only 1 in 2018.
However even though your credit scores could only factor in one inquiry, it is possible that the 6 hard credit inquiries that are on your credit reports from 2018 might cause a bank to deny you for new credit.
FICO’s Rate shopping window is an exception to the hard inquiry rule. Within this window, all credit pulls within a 45-day period for a mortgage, student loan, car loan or insurance count as one pull. Note however, that these do not apply to credit cards. FICO Scores ignore inquiries like these to allow people to shop around for the best deals without being penalized for doing so. So, to reduce the impact of hard inquiries, restrict your shopping around for these types of credit within a 45-day period.
What is a soft inquiry?
You perform a soft inquiry every time you check your credit score. A soft inquiry also occurs when an employer or governmental agency checks your credit report. Whenever lenders review your report and invite you to apply for their cards or services it is always a soft pull because you did not initiate or authorize them to look at your credit report.
These types of inquiries will have no impact whatsoever on your credit score, no matter how many times they are performed. The only time an inquiry is not a soft inquiry is when you authorize a lender to look at your credit report. So if you accept a pre-approved credit card, a soft inquiry leads to a hard inquiry.