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do credit inquiries affect your credit score

Do Credit Enquiries Affect Your Credit Score?

Do credit inquiries affect your credit score? YES! Read on to find out why, the consequences and what you can do if it's too late...

Finding the right lender isn’t easy. We all shop around in an attempt to find the best rates on the market. But sometimes, we fall into the trap of applying for multiple loans in a short space of time. After being knocked back a few times, you finally land on a lender you are happy with. This lender accepts you, and you are ready to go. This may seem like a great way to shop around for what you are after. However, it is important to ask yourself: do credit enquiries affect your credit score?

The short answer is yes. All those enquiries you made before taking out a loan have added up and have had an impact on your credit score. Here’s how it works.

What Is Your Credit Score?

Your credit file lists all your financial information in an accessible form for potential lenders to look at. All the different factors that make up your credit file combine to give you an overall credit score. A good credit score means you have a reliable credit history with no issues. A bad credit score reflects that you have potentially missed payments or faced other financial issues. This warns a lender that you are a risky borrower, lowering your chance of being approved a loan. Here are some of the things that make up your credit score:

  • The amount of money you have borrowed: a long credit history is a great thing to have. So long as you have been responsible. If you have borrowed beyond your means this will be reflected on your credit score.
  • Credit utilisation ratio: likewise, perhaps you are using all the credit available to you and only making minimal repayments. This suggests to a potential lender that you have borrowed above your means.
  • Missed repayments: if you miss repayments on a loan, this is reflected on your credit score for potential lenders to see.
  • Credit history: as mentioned above, lengthy credit history is a good thing and can increase your credit score. But only as long as all the terms of payment were met.

These are just some of the factors that affect your credit score, and it all comes down to good management of your money. But there is one other area that can also contribute to a lower credit score. This is where we ask, do credit enquiries affect your credit score?

credit inquiries credit score

Do Credit Enquiries Affect Your Credit Score?

Firstly, let’s look at what a credit enquiry is. A credit enquiry is a request put in by a financial institution or potential lender for credit report information. They can either be “soft” or “hard” enquiries, depending on the situation.

Soft Enquiries:

These aren’t included on a credit report and therefore don’t affect your score. They can be made for a number of reasons. If you are looking into your own credit file, this is marked as a soft inquiry. Credit companies sometimes make these enquiries for marketing purposes. Credit services can also use this inquiry to help you find a loan.

Hard Enquiries:

When you complete a new credit application, the lender can make an inquiry to see your full credit report, including your credit score. This type of inquiry can be harmful to your credit score.

credit inquiries

So if you want to know do credit enquiries affect your credit score, the simple answer is yes, but there are ways around it.

Shopping For  A Loan

You are still encouraged to shop around for a loan, the most important thing is that you do it in a short space of time. If you are shopping around for a new mortgage or to take out a car loan, then make sure you do your research first. Take a look at how many enquiries you can take out in a certain amount of time to make it only count as one. This is what allows you to check different lenders and shop around without it affecting your credit score. Often you are given a 45-day window to shop around in. This allows you to make multiple applications, with all the enquiries made counting as just one in this time. When you draw out this process longer than the time provided, each one will start being recorded as an individual hard inquiry.

This means before you shop around, have a list of lenders you want to apply with and check out. This will streamline the process and ensure you stay in the required window.

Finding The Best Loan

If you are looking at taking out a loan, then it is a good idea to check your credit score first and see where you stand. You can consult the experts at Clean Credit to clean up any negatives against your name that shouldn’t be there. This can give you your best chance of taking out a loan. Once you are ready to go, be sure to shop around in a short period to ensure it doesn’t affect your credit score in the process.

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