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Understanding Credit Inquiries: A Guide by O1ne Mortgage
What Is a Soft Inquiry?
A soft inquiry occurs when someone checks your credit for non-lending reasons or without your explicit permission. These inquiries do not impact your credit scores. Common scenarios include:
- Checking your own credit report or score
- Preapproval for a credit card or loan
- Inclusion in a list for prescreened credit offers
- Credit checks by current lenders or card issuers
- Employer credit checks
- Collection agencies seeking contact information
- Insurance companies using credit-based scores
- Court-ordered credit checks
Certain applications, such as those for utilities, phone services, or rentals, typically result in soft inquiries. Always confirm with the company before agreeing to a credit check.
What Is a Hard Inquiry?
A hard inquiry happens when someone checks your credit report in response to a credit application. This can occur when you:
- Apply for a loan
- Apply for a line of credit
- Apply for a credit card
- Request a credit limit increase (though some issuers use a soft inquiry)
Hard inquiries can negatively impact your credit scores. However, a single hard inquiry usually only reduces your FICO® Score by less than five points and the effect may last only a few months.
Why You Should Avoid Too Many Loan Inquiries
Credit scoring companies have found that individuals who frequently apply for and open new accounts may be more likely to miss payments in the future. While a single hard inquiry might have a minor impact, multiple hard inquiries can amplify the effect. Even if a creditor denies your application, the hard inquiry remains on your report.
However, credit scoring models recognize that people often shop around for the best loan offers. For instance, you might seek multiple auto loan or mortgage offers to compare rates and terms but only take out one loan. Scoring models have rules to accommodate this behavior, allowing you to shop for credit without excessive worry about multiple inquiries.
How Long Do Hard Inquiries Stay on Your Credit Report?
Hard inquiries can remain on your credit reports with Experian, TransUnion, and Equifax for up to two years. However, they typically don’t affect your credit score for the entire duration.
- FICO® Scores consider inquiries from the past 12 months.
- VantageScore credit scores may consider inquiries from the past 24 months.
The impact of a new hard inquiry usually lasts only a few months. Additionally, hard inquiries are only added to the credit report that a creditor requests. For example, if you apply for a personal loan and the creditor checks your Experian report, the hard inquiry will only appear on your Experian report.
Do Multiple Credit Inquiries Count as One?
Multiple hard inquiries from loan applications can sometimes count as a single inquiry for scoring purposes, depending on the type of loan, the credit score model, and the timing of the inquiries.
- VantageScore: Counts multiple hard inquiries within a 14-day period as one inquiry.
- FICO: Only deduplicates hard inquiries from auto, home, and student loans. The latest FICO® Scores use a 45-day window for deduplication, but some older models use a 14-day period. FICO® Scores also ignore hard inquiries from the previous 30 days for these types of loans.
Don’t Be Afraid to Gather Loan Offers
While you might want to avoid repeatedly applying for new loans or credit cards if you’re unlikely to be approved or are preparing for a major purchase, don’t let the fear of hard inquiries deter you from rate shopping. Use your knowledge of scoring rules to make strategic decisions, such as submitting applications within a 14-day period. Additionally, consider getting preapproved or prequalified to see estimated offers with a soft inquiry, which won’t affect your scores.
For any mortgage service needs, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate the complexities of credit inquiries and find the best loan options for you.
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