What is a hard inquiry? It dings your credit score every time you want to borrow money, but it's not a bad thing

Klaus Vedfelt/GettyA hard inquiry may temporarily ding your credit score.
  • A hard inquiry is a request made by a lender who wants to view your credit report before approving you for a new loan or line of credit.
  • With your permission, a lender receives a copy of your credit report, which lists your account and payment history, and other hard inquiries from the last two years.
  • Too many hard inquiries in a short period of time may raise red flags for lenders because they signal a high volume of new accounts and may indicate a risk of overspending.
  • Hard inquiries may temporarily ding your credit score, but only remain on your credit report for two years.
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A credit report is essentially the report card of adulthood. Almost everything we do with our money (besides spending cash) turns up on our credit report, which is then evaluated to produce a three-digit credit score.

Your credit report lists all of your most important financial activities since your very first loan or line of credit, including what loans and credit cards you have or have had in the past, how much money you owe on each, and whether you have paid those bills on time or late.

Lenders and businesses look at your credit report to determine your riskiness as a borrower when you apply for a new credit card or credit-limit increase, a mortgage, a personal loan, an auto loan, or even a new apartment or job. Depending on the reason for the credit check, the lender or business will request a copy of your credit report either as a soft inquiry or a hard inquiry.

What is a hard inquiry?

Your credit score summarises your credit history and helps lenders make a quick evaluation, but they usually want more details and will make a hard inquiry for a copy of your credit report before approving your application.

A hard inquiry is somewhat counterintuitive. It gives the lender a full look at your credit history, but may negatively influence your credit score as a result, though usually only by a few points. What has a greater influence on your credit score is actually opening multiple new accounts or lines of credit in a short period of time.

In addition to gaining access to your payment and account history, lenders can also see a section on your credit report that lists any other hard inquiries made in the last two years. In other words, they can see whether you’ve ever missed a payment and how much debt you owe, but also how many accounts or loans you’ve recently applied for.

Too many hard inquiries may raise red flags for lenders because they signal a high volume of new accounts in a short period of time, according to credit-reporting company Experian, which “may mean you’re having trouble paying bills or are at risk of overspending.” Lenders may make an exception, however, if the inquiries are for the same product, like a mortgage, and it’s clear you’re shopping for the best rate, Experian explains.

Soft inquiries, by contrast, aren’t linked to a specific credit or loan application – they’re usually made by employers, landlords, and banks for pre-approved offers.

Soft inquiries are only visible to you, with a few exceptions – insurance companies can see inquiries made by other insurance companies, and your current creditors may be able to view inquiries made by debt settlement companies, according to Experian. Soft inquiries have no affect on your credit score.

It’s important to check your own credit report periodically to ensure the information is accurate. If something looks amiss – there’s a hard inquiry from a lender you don’t recognise, for example – you could be a victim of identity theft. You can access your free credit report from annualcreditreport.com three times a year – once from each of the three major credit bureaus, Equifax, Experian, and TransUnion.

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