If you’re wondering whether or not credit inquiries can damage your credit score, the answer is ‘it depends’. While a soft inquiry will not affect your credit rating, hard inquiries can. Here’s why.
When you or a particular business accesses your credit report, it is called an ‘inquiry’. For example, when you apply for a personal loan from Company X, your lender will request your credit report as well as your credit score from any of the major credit reporting companies in Australia. The details of such an inquiry will be noted in your report. In the same way, your requests for a copy of your credit report in any of the credit reporting agencies in Australia will also be duly noted.
Soft vs Hard Inquiry
If a business gets a copy of your credit report as a response to your application for credit, it is a hard inquiry and can lower your score. But, any request made by you or any business which is not for the purpose of obtaining credit is just a soft inquiry and will not affect your credit score in any way. The reason why hard inquiries influence your credit scores is that they suggest you may have acquired new credit accounts that are not yet shown on your credit file. On the other hand, soft inquiries do not affect your credit scores in any way because you requested them for personal reasons, or they are mere reviews by your current lenders, preapproved credit offers or inquiries made by a potential employer.
Hard Credit Inquiries Can Damage Your Credit Score
Ten percent of your credit score considers the number of credit inquiries and new credit accounts recorded in your credit file within the past year. While a single hard inquiry can only lower your score by less than five points, shopping heavily for credit on the same period can cause more damage. Submitting multiple applications within the succeeding months may also signify that you are having financial troubles, or that you are applying for new debts to keep up with your bills or daily needs. The records of your hard inquires could also give your lenders an insight into your financial situation, and they may turn you down on that note.
Remember that lenders only approve applications to borrowers who are capable of making repayments. Applying for multiple credits all at once may give them the impression that you are overextending yourself, which makes you a higher-risk customer. So, if you are really short on cash, wait for some time before you send your credit applications. Wait for it to be approved or turned down before you send another one. Even if in reality you are really ready to rack up a lot of debt, spreading out your applications for new credit accounts will not show it.
Which Inquiries Are Counted by Equifax and Other Credit Reporting Agencies?
Most of the reporting agencies ignore your old inquiries, only the more recent ones have a great impact on your score. Nonetheless, it is still worthwhile to apply for new credit despite the number of hard inquiries if you really need the money. Remember that lenders will not turn down your applications just because you had multiple hard inquires. Credit providers still put more weight on other factors – such as your payment history on existing credit cards and loans, total debts you owe, length of credit, and credit mix. They are least likely to decline your credit application for an inquiry alone.
Whenever someone pulls out your credit report as part of a background check, either for employment purposes; or just to see if you qualify for a credit card or new line of credit, it is considered as a soft inquiry. Some insurance companies also make soft inquiries to check if you pre-qualify for insurance quotes. It won’t lower your credit score and may not even appear on your credit file. You can only view these soft inquiries whenever you request a copy of your credit report.
Can I Minimize the Impact of a Hard Inquiry?
This is a tricky technique. So, it is better to consult your credit repair company first before doing this. If you want to ship for the lowest loan rates, you can rack up multiple hard inquiries as long as you do your window shopping in less than two weeks. This way, credit reporting companies may only consider it as one inquiry—provided that they’re the same loan and made within the same period. True – they will still have an impact on your credit score – but only once. If you’re up for one major blow, then go for it.
Your credit score has a huge impact on your borrowing power. Your chances of being approved for new credit accounts, utilities and even obtaining employment will be higher if you take time to build your credit scores. If you think that you have received damage to your credit score by making hard credit inquiries then you should check your credit file as soon as possible.
Get in touch with one of Clean Credit’s friendly team members to discuss how you can check your credit file or clean up your credit history today.