Credit Report Inquiries

When someone – a potential lender, employer, landlord, insurer, or you – needs to see your credit report, that party makes an inquiry to one of the three credit bureaus (Equifax®, Experian™, or TransUnion®). Sometimes, these inquiries are referred to as credit pulls because someone is pulling information about you from the credit bureaus’ files.

There are two types of credit inquiries:

Hard inquiries or hard credit pulls

These can potentially have a negative impact on credit scores.

A hard inquiry usually happens when a lender is checking your credit to make a lending or credit decision, such as a bank deciding whether to approve you for a credit card. Hard inquiries may occur when other types of companies check your credit as well, like a cell phone company deciding whether to give you a cell phone contract or a collection agency checking your credit for skip tracing purposes.

Soft inquiries or soft credit pulls

These do not impact credit scores and don’t look bad to lenders.

In fact, lenders can’t see soft inquiries at all because they will only show up on the credit reports you check yourself (aka consumer disclosures). A soft inquiry happens when there is no credit decision being considered. For example, it’s a soft inquiry when you check your own credit report or an existing lender checks your credit in a context where you’re not applying for new credit (such as monthly account maintenance credit checks or promotional credit checks).

The next time you get a copy of your credit report, look for the section labeled “requests for credit history” or something similar. This part of the report will list the names of all of the companies that have recently requested a copy of your credit report.

Equifax®, like Experian™ and TransUnion®, used to count phone and internet service inquiries as hard inquiries. But, effective April 6, 2020, inquiries on Equifax® credit reports for wired and wireless phone, internet, and pay TV accounts can be counted by service providers as soft inquiries. By June 30, 2020, Equifax® will automatically classify those new accounts as soft inquiries.

Hard Inquiries

The main difference between hard and soft inquiries is that with one notable exception – collection skip tracing – creditors make hard inquiries specifically to decide whether to approve you for a loan or some form of credit or service.

Does applying for a credit card hurt your credit score?

The short answer is YES, it can. But, if it does damage your score, one credit inquiry usually won’t impact credit scores very much or for very long.

According to Fair Isaac Corporation, which administers the FICO® credit score, most people who have one hard credit inquiry will see a reduction in their credit scores of less than 5 points. Some may not see any score reduction at all (FICO® credit scores range from 300 – 850).

But FICO® doesn’t disclose its exact algorithm. So, there is a risk that a new hard credit inquiry on your credit report could reduce your credit score slightly. Plus, when you have many hard inquiries (for example, more than about four per year), it can become problematic when applying for new credit cards due to certain card issuer qualification standards.

If you apply for many accounts all at once or over a short period of time, there’s a risk you could see your credit scores drop significantly. And, if you have relatively few credit accounts or a short credit history, the impact of hard inquiries could be more significant.

Hard inquiries impact FICO® scores for one year, even though they stay on credit reports for two years.

It’s important to remember that credit decisions are not always based entirely on a credit score. There are other factors that can be considered in a lending decision, like the number of hard inquiries you’ve had in the past two years, even though they’re no longer factored into your credit scores.

For example, some credit card companies will automatically deny anyone with more than five inquiries in the past 24 months (two years). If you have seven inquiries in the past two years, but only one in the past year, it’s possible your credit scores could look great and only factor in one inquiry, however the additional six hard credit inquiries on your credit reports from more than a year ago might cause a bank to deny you for new credit.

Combining multiple inquiries for auto, mortgage, and student loans

When you shop around for a mortgage, auto loan, or student loan, you may end up with multiple hard inquiries. However, you’re not looking to take out 10 loans. You’re rate shopping for the best deal on one loan.

For this reason, credit scoring models are designed to include special rules for these certain types of loans in an effort to prevent your scores from being penalized for multiple inquiries for the same loan.

With FICO® scoring models, all auto, mortgage and student loan inquiries that are fewer than 30 days old are completely ignored. After 30 days, the model breaks those three types of inquiries into a 45-day “de-dupe ” period. Multiple inquiries during a 45 day period are grouped together and counted as one inquiry. This process is called “collapsing.”

Combining multiple inquiries for credit cards

The “shopping around” logic that combines multiple inquiries for auto, mortgage, and student loans is not designed to work for credit cards.

With installment loans, even though you may be approved for the loan, you still have the option of choosing whether or not you want to accept the loan and take delivery of the money. You will probably not open all the accounts, so multiple inquiries can be collapsed into one.

Credit card applications are different. If you’re approved, the credit card issuer doesn’t give you the option of choosing whether or not you want to accept the terms. Instead, the account is opened, you get the card, and it’s a done deal (whether you activate the card or not). For this reason, every credit card inquiry has the potential to become a new credit card if you’re approved, which is a likely reason why credit scoring models don’t collapse multiple hard inquiries into one.

Sometimes, however, if you apply for multiple credit cards with the same issuer in a short period of time, you may only end up with one inquiry on some or all of your credit reports. This is not because the issuer is combining the inquiries and only pulling your credit once. Instead, the credit bureaus see that you have multiple inquiries that look exactly the same because they’re from the same issuer on the same day. Since the credit bureaus want to avoid duplicate information and the inquiries look identical, they may only count one of them.

Avoiding hard inquiries

If you’re trying to build (or rebuild) your credit, it can seem frustrating that applying for a credit card can have a slight negative impact on credit scores even if you’re approved. But it’s important to remember that a hard inquiry is a normal part of the lending process.

It may be tempting to try to look for ways to game the system, like applying for multiple cards at the same time in hopes of getting approved for multiple cards with only one inquiry. While it might be possible to get lucky and have this work in your favor, it’s not something we recommend.

As long as you’re not overapplying for new credit, it shouldn’t be necessary to try to avoid hard inquiries. They won’t have a long-term impact on your credit scores if you’re using credit responsibly.

Soft Inquiries

Unlike hard inquiries, soft inquiries don’t impact your credit scores or lender decisions. Soft inquiries are informational in nature and are not directly connected to a credit decision. For example, a current or prospective employer could make a soft credit inquiry during the employment screening process (though your written permission is required first).

Credit card companies creating a “preapproved” credit card offer may conduct a soft inquiry to see whether they want to send that offer to you (you can visit OptOutPrescreen.com to stop promotional inquiries, but it’s not necessary unless you are tired of all the junk mail). Whenever you check one of your credit reports yourself, that is considered a soft inquiry.

The best way to determine whether a credit inquiry is a “hard” inquiry or a “soft” inquiry, is to ask this question: Could this inquiry result in a new credit account? If the answer is no, then chances are good that inquiry is a “soft” inquiry that will not impact your credit score.

Soft inquiries can also come from your current creditors, who periodically check your credit to see how it stands and may, as a result, make changes to your account. For example, if you have improved your credit history over time, the creditor might increase your line of credit or lower your interest rates. These are known as account maintenance credit checks, and they’re especially common among credit card issuers.

If you allow your credit to get worse, by missing a payment, for example, your lender might raise your interest rate or reduce your available credit. Your auto and homeowners insurance company may also make an inquiry when it is time to renew as it sets the rate on your policy renewal. This is also a soft inquiry.

Who is actually able to see soft inquiries on your credit reports?

Soft inquiries will only show up on your credit report when you personally check your own credit reports (like when you use AnnualCreditReport.com, online personal credit checks, and credit monitoring services). The credit reporting agencies do not disclose information regarding soft inquiries on reports sold to third parties. If a lender, insurance provider, or employer checks your credit report, your soft inquiries will not be displayed.

Do lenders ever consider soft inquiries on credit reports in lending decisions?

Lenders never consider soft inquiries when making lending decisions. It would actually be impossible for them to do so, even if they wanted to, due to the fact that your soft inquiry history will never show up on a lender’s credit report.

Removing Unauthorized Inquiries

If you find hard inquiries listed on any of your three major credit reports that you did not initiate, you can request their removal by disputing them with any of the relevant credit bureaus.

Under the Fair Credit Reporting Act, each credit bureau must investigate the disputed information with the bank that reported the inquiry to prove that you initiated the request for credit. If they find that you did not initiate an inquiry, it will be removed. However, if they confirm you made the inquiry, it will not be removed.

If you still disagree, you might have to go as far as filing a police report stating that someone has applied for credit in your name and send a copy of the report as proof with your next set of dispute letters to the credit bureaus.

If your credit reports show multiple credit inquiries that you did not authorize, that could indicate that someone has stolen your identity. You should contact the credit reporting agencies as soon as possible if that’s the case. You can also visit IdentityTheft.gov for help navigating the process and to file the ID theft report you may need to send to the credit reporting agencies to prove that you’re the victim of a crime.

Why Do Credit Card Issuers Pull My Credit Report Every Month?

Whether you realize it or not, your credit reports are likely scrutinized often by your credit card issuers – and not just when you initially apply for an account. It is common practice for many credit card issuers to review the credit reports of their customers every single month.

As a consumer, it may seem unfair for a credit card company to routinely monitor your credit reports, especially if you are maintaining on-time monthly payments. But changes to your credit history can be an indicator of increased risk. Those changes can help a card issuer detect a potential problem before there’s an actual delinquency on a specific account you already have established with a bank.

Why changes in your credit make credit card issuers nervous

When times get tough financially, consumers often have to make difficult choices regarding which bills get paid and which bills are put on the back burner. Typically, credit card payments wind up at the bottom of the priority list when consumers are having money problems.

After all, if someone becomes unemployed, is battling an illness, or even becomes overextended financially, it can be a struggle just to put food on the table and keep housing expenses and utilities paid. Credit card issuers want to know immediately if a customer’s credit situation changes for the worse (such as missed payments on other accounts, lower credit scores, bankruptcy filing, etc.).

Knowledge regarding what is currently happening on a customer’s credit report allows a credit card issuer to determine if the risk of default on the customer’s credit card account has increased. If a customer’s credit report has taken a turn for the worse then it is very likely that there will be negative consequences, even if the customer has never missed a payment with the credit card issuer directly.

Possible negative consequences include:

• Lowering of credit limits
• Raising of interest rates
• Account suspension
• Account closure

Consequences of changes to your credit report

Prior to the passage of the CARD Act of 2009, credit card issuers would routinely increase customers’ credit card interest rates (for future purchases and retroactively) to the default rate if the customer had late payments on any account on their credit reports. This rate increase was often triggered even if the late payments occurred with another lender entirely and not with the credit card issuer itself. This practice was known as universal default.

The CARD Act did limit retroactive rate increases, but you would be mistaken if you believe that the practice of universal default has been completely eliminated. In fact, a credit card issuer can still impose a retroactive rate increase, but it can now only be imposed if the customer has missed payments with the card issuer directly.

Even though credit card issuers are more limited regarding universal default practices, there are plenty of other adverse actions which are still allowed whenever a customer has negative activity appear on his or her credit reports. Customers who miss payments with another unrelated lender could still face consequences such as lower credit limits, increased interest rates on future purchases, and even account closings.

Naturally, the best way to protect yourself from universal default clauses and other adverse actions from your credit card companies is to always pay your bills on time, and in general, never revolve a balance on your credit cards from one month to the next.