Credit checks are reported as an “inquiry” to credit report agencies. Inquiries tell other creditors that you are considering on taking on new debt. Whenever an inquiry is made, it has a small yet negative impact on your credit score. You can’t avoid them all together as it is necessary step in applying for a mortgage or a loan and sometimes even potential employers do a credit check before they will hire you. It pays to be smart and to work around this so as a general rule, it’s best to apply for credit only when you need it.
When you apply for a credit card, a car loan or any type of loan, this results in an inquiry that will lower your credit score. If you plan on getting a mortgage anytime soon or are already in the mortgage process, you should avoid these types of credit for now.
It’s still important to know your credit score as it is an important and essential aspect of maintaining a good financial health. There are two types of inquiries that can be made on your score and here’s a take on the different types of credit pulls and how it can impact your score:
Hard inquiry. This can knock down a few points off your credit score and this is a legal inquiry to view your credit history. It includes: law enforcement agencies, prospective employers, insurance companies, creditors you have existing debt with, creditors you’d want to do business with and utility companies. You also have the right to give someone access to view your credit report should they not fall into the category mentioned. It qualifies as a hard inquiry when a lender or a business obtains a copy of your report in response to an application for credit. This means that it can show up on your credit score and can be used in part to determine your credit score. Each new hard inquiry does show up on your credit report however you do get a break if you’re shopping around for a mortgage or if you’re trying to refinance your student loans.
Soft inquiry. This means checking on your own credit. It occurs when a person or a prospective employer checks your credit as part of a background check. A lender may also do a soft inquiry as part of a pre-approval process if you’re trying to get a rate quote of a loan. You can check on your own credit as many times as you want without the risk of hurting your credit score. Actually, you should check on your credit report and credit score regularly to ensure there are no errors or any identity theft has occurred. Peeking at your own credit can also be a motivator if you’re working on paying down debt.
So, how long do inquiries stay on your credit? Inquiries on your credit remain on your credit report for 24 months or 2 years and only a hard inquiry can impact your score for the first 12 months.
For more on your credit and how to get a better score read these great articles.