How hard inquiries hurt your credit score
By Erica Sandberg
November 17, 2015
I have a question about what goes on my credit report. If I check my credit or any car dealership checks my credit does my score go down? How can I stop this and still get what I need to have? What is on my credit report? Thank you! — Nhung
A large amount of information is listed on a person's credit report, including evidence that you applied for loans and credit cards, as well as when others are pulling your report without your prompting.
There are two types of inquiries — hard and soft. Both can be listed on your report.
A hard inquiry is generated when you apply for a loan or credit card. You are giving the financial institution permission to check your credit report to see if you're a good fit for the product. When shopping for a car, home or student loan, for instance, multiple hard inquiries within a short period of time count as one inquiry on your credit report and will have little impact on your credit scores. However, applying for multiple credit cards will cause a hard inquiry each time, lowering your score.
Both types of inquiries remain on your report for two years, but only a hard inquiry negatively impacts your credit score during the first year it appears. The only way to stop hard inquiries from dinging your score is by not applying for credit.
A soft inquiry is for background checks for insurance purposes or by employers or lenders seeking to either review an existing account you have or to see if you might qualify for a product they are selling. If you were pre-approved for a credit card, it's because the issuer peeked into your report and believes you might be a good customer. A soft inquiry won't affect your credit score.
To know what is listed on your consumer credit report, all you have to do is take a look. There are three leading credit reporting agencies in the United States: TransUnion, Equifax and Experian, and you can get your report from each one for free, once per year, from annualcreditreport.com.
Although each agency is independent, they all collect data sent to them from subscribers (creditors, collectors and the courts) and then organize it into readable reports. Banks, credit card issuers, property managers and even employers can have access to the reports, as they help these companies make objective business decisions.
You have the right to check your own reports, though, and this won't ding your credit score. It's wise to check your credit reports and be on constant watch for anything that might be amiss.
So besides the inquiries, what else is on these reports?
- Identification. This includes your name, address and Social Security number. This area is not scored, but you do want it to be accurate. If you have a similar name as a family member who lives at the same residence, mistakes can happen.
- Trade lines. Student, vehicle and home loans appear here, as do credit cards and any accounts that have landed in a collection agency. Late payments and defaults can remain listed for seven years, and closed accounts will stay on your report for 10 years. Both the good and the bad will be factored into your score for as long as the items are on your report.
- Public records. Legal notices concerning bankruptcies, judgments, tax liens, child support foreclosures and other court-related debts appear in this area. You want this section to be empty, since these types of trouble can have lasting impact. A Chapter 7 bankruptcy, for example, will remain for 10 years, and a child support debt can be listed until cleared. While it is on your report, your credit score will be negatively impacted.
If you find an error or errors on your credit reports, submit a dispute online at Experian, Equifax or TransUnion (or by mail). Contact the creditor that sent the wrong information, too, and include documentation (number called, day and time, and whom you spoke with and what was said) of your communication with the credit agency. After you submit a dispute, the credit agency has 30 days to verify the information and update your credit report.
Now you can spread the word about how credit inquiries are reported and rated!
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