Whether you have taken out multiple loans or have only used credit cards in the past, you must have heard about the concept of credit inquiry. While a credit inquiry is a seemingly straightforward process that checks your financial standing with third parties, it has some intricacies that make it a bit more complex than meets the eye.
With that being said, a credit inquiry is an unavoidable process if you want to take advantage of beneficial lending opportunities. Additionally, it is also a crucial aspect of building and maintaining a good credit score.
To help you understand this factor a little better, here’s a guide to credit inquiries and how they affect your credit score.
What is a Credit Inquiry?
A credit inquiry is the process of checking your credit report. Besides personally identifiable information, your credit report includes factors like your credit score, your late payment history, and your credit account details. This gives third parties like lenders, employers, and landlords a summary of your financial status and your responsibility towards managing your money. You can also make a credit inquiry yourself to see how your credit report appears to third parties and avoid common credit card mistakes as a result.
How Does a Credit Inquiry Work?
To give third parties like lenders a quick overview of your credit history, credit bureaus collect financial information that is submitted to them by creditors and collectors. When someone makes a credit inquiry, the request is processed by these institutions. You can also make free 3 credit report requests at one of these credit bureaus to get your own credit report. This gives you an idea of where you stand in terms of your credit score and history.
What Are the Different Types of Credit Inquiries?
There are two different types of credit inquiries.
Soft Inquiry
This inquiry takes a quick overview of your credit report and checks factors like your credit score. This inquiry does not go into too much detail about your credit report. This makes it ideal for processes like loan pre-approvals and personal credit report checks. A soft inquiry does not affect your credit score. This means that if you want to improve your financial status with the help of a finance journal, you can make a soft inquiry about your credit score without any worries.
Hard Inquiry
This inquiry takes an in-depth look into your credit report, including your credit score and your recent requests for credit. This type of inquiry is typically made by lenders once you have applied for credit, like loans and credit cards. A hard inquiry not only returns detailed findings on your credit report but also affects your credit score. A hard inquiry lowers your credit score for typically one year and stays on your credit report for up to two years.
How do credit inquiries affect credit scores?
No matter if you are trying to master credit card debt or pay off your student loans, a credit inquiry can affect your credit score. But this only occurs when you make a hard inquiry, which typically happens when you apply for new credit. That is why it is important that you be mindful of your finances and only apply for credit when necessary.
With that, you should also steer clear of applying to multiple credit products in quick succession. This is where the habit of maintaining a budget planner or app can work wonders for your financial wellness.
Do Credit Inquiries Appear on Your Credit Report?
When you or third parties make a soft inquiry to know surface-level details like your credit score, it doesn’t appear on your credit report and doesn’t affect your credit score. But if a hard inquiry is made about processes like getting a personal loan at low interest rates, it appears on your credit report. This inquiry may also remain on your credit report for up to two years.
Can You Remove Credit Inquiries From Your Credit Report?
Similar to how you may use an insurance platform to get favorable quotes from different providers, you can reach out to credit counselors or lenders to get hard inquiries removed from your credit report before the two-year period has ended. While hard inquiries typically only affect your credit score for up to one year, it’s better to get them removed as soon as possible.
By going through these details, you can get a better idea of how credit inquiries work. This can help you improve and maintain your credit score without getting blindsided by the effects of hard inquiries on your credit report. get