Say you’re looking into a new credit card. You’ve spent a long time trying to find the right one, and you have one more thing to do. It’s now time to investigate the application process, but you’ve found out that it will give you a hard credit enquiry. In this article, we discuss what is a hard credit enquiry, and why do they hurt your credit?
When you least expect it, your credit score could severely impact your life. While it may not seem like a big deal, your credit score is far more important than you think. In fact, it can put up many roadblocks for you when it comes to your finances. This alone can set you back and cause plenty of stress which is why you need to stay educated on the subject.
Let’s take a look into exactly what a hard enquiry is and how it can hurt your credit.
Why do hard enquiries hurt your credit?
Credit enquiries are stamped on your file whenever someone successfully accesses your credit account. This then leads to the credit bureaus taking note of this information and recording all of the details. They will also recognize the entity accessing your information. Hard enquiries happen when a lender accesses your credit report to evaluate you as a borrower. So, why do hard enquiries hurt your credit?
Essentially, they happen when lenders look at the information in your report to decide whether to approve or deny your application for credit. Hard enquiries will get reported on your credit report when someone checks your credit. However, it must be for the purpose of considering you for a loan or credit card. These do, in fact, impact your credit which is why it’s important that you understand them.
You should also find out why they’re here and how you are able to limit them.
Are hard enquiries bad?
It is important to remember that hard enquiries aren’t necessarily bad. They are an aspect of how credit reporting works and it is quite good that this information is recorded. With this reporting, you should be able to see who has accessed your personal credit information and why.
With that being said, hard enquiries aren’t neutral at all. They can greatly impact your credit, so you want to keep them to as minimal a number as possible. This helps to answer the question of why do hard enquiries hurt your credit?
What makes up a credit score?
Hard enquiries are one of the many factors that make up your credit score. These factors include:
- Credit mix– Creditors who want to see that you can manage different accounts. These include revolving and installment accounts. Credit mix makes up roughly 10% of your score.
- Payment history– Whether you pay on time or not can impact around 35% of your credit score.
- Credit age– How long you have had your credit as well as the age of your oldest accounts contributes to roughly 15% of your score.
- Hard enquiries– The number of recent hard enquiries on your report will make up about 10% of your score.
- Credit utilization– How much of your available revolving credit limit you’re actively using can account for roughly 30% of your score.
How and why do hard enquiries hurt your credit?
As you can see from this, hard enquiries are not the most important factor. However, they do impact it. That is because many hard enquiries on your account will look like your desperately chasing credit constantly or that you have been borrowing above your means. This is not a behaviour a lender would want or expect to see from a person with stable finances.
However, they usually only tend to impact your score for the first 12 months. How much they actually impact your score depends on a variety of factors. One being what your score was to begin with. This accounts for why do hard enquiries hurt your credit.
How many hard enquiries is too much?
There isn’t really a number that defines ‘too many’. If you suddenly have a large amount, however, it can look bad to potential creditors. As well as this, if you’re losing up to 10 points with each one, your score could drop fast. Spacing out the enquiries will help to ensure that your credit doesn’t take a hit. It will also allow time for your score to recover before another enquiry.
The only thing to keep in mind is that a large number of enquiries will heavily affect your score.
The bottom line
Realistically, hard enquiries aren’t something to be scared of. If you keep your applications low and your credit is in good shape, you need not worry. If you’re worried as to why do hard enquiries hurt your credit, fear no more. If your credit is already struggling, contact the team at Clean Credit to repair your credit and get your finances back on track.