In some of the previous sections, we have talked about you checking your credit score and credit report. You may already know this action has no effect on your score whatsoever.
In this section, we are going to go deeper into the details of Soft Inquiries and Hard Inquiries.
When you yourself or a potential lender asks credit bureaus for your credit report, it generates an Inquiry. According to the type of Inquiry, your credit score won’t or will be affected.
There are two types of inquiries:
- Hard Inquiry: A hard inquiry takes place when a lender with whom you have applied for some form of credit decides to ask for your credit report. They do this so as to gauge your creditworthiness. This type of inquiry brings down your credit score (damn it!), but it’s temporary.
- Soft Inquiry: A soft inquiry is when you ask the credit bureaus to check your credit score. It also includes instances of credit card companies and lenders checking your score in order to pre-order you for their offer. The best thing about soft inquiries is that they do not affect your credit score at all!
Now, it is just the proverbial tip of the iceberg. There’s much more to know about hard and soft inquiries.
Hard Inquiries
When you apply for loans or credit such as an auto loan, mortgage or credit card, the lender of those financial instruments checks your credit report for the score. The lender approaches any one of the credit bureaus for this. Since these practically are actual credit applications, these are considered to be hard inquiries. As such, your credit score is affected adversely.
How do Hard Inquiries affect your scores?
When there are too many hard inquiries for your credit score within a short span of time, your credit score slides down faster than you can imagine.
This is because a lot of hard inquiries in a short time makes potential lenders sit up and take notice. It upsets them. Too many hard inquiries adds to multiple new credit accounts. Opening so many new credit accounts in a short span of time only shows you are having problems in paying bills and require new loans to stay afloat.
Therefore, hard inquiries are bad for your credit score as no one likes giving loans to those who are in perpetual need, no matter how much it helps their cause.
There is a silver lining to this dark cloud though. Credit bureaus consider the possibility you were just rate-shopping, and not actually applying for loans. Thus in this case, multiple inquiries about a particular kind of product like home loans are considered to be a single inquiry. Thus, this has only a small effect on your precious credit score.
However, do remember inquiries are not the only reason you can be denied credit. In fact, that rarely happens. Criteria like payment history, credit mix, credit utilization ratio and types of credit are even more important.
How long do inquiries affect your credit report?
The bad news first: hard inquiries stay on on credit report for more than 2 years.
Now for the good news: Their impact on your credit score decreases over time.
Don’t worry even if you have several hard inquiries just within a few months. For a potential lender, on-time payments and low credit utilization ratio are more important than your number of hard inquiries.
While you yourself can remove hard inquiries from your credit report, it is possible only if a company pulls your credit in error, or has done it without your permission. In such cases, you need to ask the credit bureau to remove this instance from your report file.
All about Soft Inquiries
A Soft Inquiry is developed when:
- You check your own credit score and report.
- You give permission to outside agencies like potential employers to check your credit report.
- Lenders, credit card companies, insurance companies and others check your credit report to give you a pre-approved loan.
Who can see your report’s Soft Inquiries?
Normally, only you can do so. However, there are exceptions.
Others who can view it are:
- Insurance companies who can see the inquiries of other insurance companies
- Debt settlement companies who are authorized by you to view your report, that will also be shared with your current creditors
Soft Inquiries simply have no effect on your credit score. These are only for future reference and cannot be disputed.
Only a few outsiders, and only those who have your permission, can view your soft inquiries. These are not taken into account when calculating your credit score.
Now that we have learned both about Hard Inquiries and Soft Inquiries, let us learn about:
How to manage the Hard Inquiries as to salvage your credit score:
- Apply for loans only when you really need it
- Try removing the dispute by a certified letter, addressed to the credit bureaus. Explain why you want to dispute the inquiry, the name of the company than initiated the Hard Inquiry without your permission, and that you want it to be removed. Include your updated credit report and highlight those items you are disputing. State the reasons clearly.
- If you don’t want to write such a formal letter, you may just want time to do its work. Hard Inquiries are not permanent. They may take a few years, but fall off your credit score in time.
No comments:
Post a Comment