Credit Report Inquiries

John Ganotis

John Ganotis

Updated Oct 09, 2016

What Is a Credit Inquiry?

When someone—a potential lender, employer, landlord, insurer, or just you—needs to see your credit report, they make what is called an inquiry.

There are two types of credit inquiries: hard inquiries and soft inquiries. Hard inquiries can have an impact on your credit scores, while soft inquiries do not.

The next time you get a copy of your credit report (which, as a soft inquiry, will have no impact on your credit score), 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.

Hard Inquiries

The main difference between hard and soft inquiries is that creditors make hard inquiries specifically to decide whether to lend you money.

Does Applying for a Credit Card Hurt Your Credit Score?

The short answer is YES, but not very much or for very long. Each hard credit inquiry on your credit report could reduce your credit score slightly.

According to Fair Issac Corporation, which administers the FICO credit score, most people who have one hard credit inquiry will see a reduction in their credit score of less than five points (FICO credit scores range from 300 to 850).

If you apply for a lot of credit all at once or over a short period of time, your score could be lowered even more. If you have relatively few credit accounts or a short credit history, the impact of a hard inquiry would be more significant. Such hard inquiries remain on your credit report for up to two years but creditors may not count them as negative after six months.

Learn all about how hard inquiries and credit cards affect your credit in our Definitive Guide: How to Build Credit with Credit Cards.

Rate Shopping for Auto, Mortgage and Student Loans

When you shop for a mortgage, auto or student loan, even though you may have several credit inquiries, it’s still only one search for credit — or one loan. You’re not looking to take out 10 mortgage loans, you’re rate shopping for the best deal on one loan.

For this reason, credit score models are designed to include a special inquiry logic specific to inquiries that are mortgage, auto or student loan related so that you’re not penalized for multiple inquiries for the same loan. Take note that this is not true when it comes to credit card inquiries, so if you apply for many credit cards in a short period of time each inquiry will impact your credit score.

With the FICO scoring models, all auto, mortgage and student loan inquiries that are less than 30 days old are completely ignored. After 30 days, the model breaks inquiries into a 45 day “de-dupe” period where multiple inquires during a 45 day period are grouped together and counted as one inquiry. This process is called “collapsing.” But, don’t try using a rate shopping approach for credit cards unless you want to see your credit scores go down to some extent.

Credit Card Inquiries and Rate Shopping

This logic is not designed to work for credit cards, however. Applications for credit cards work much differently than applications for installment loans. 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.

With credit card applications, 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 —the account is opened, you get the card and it’s a done deal. For this reason, every credit card inquiry has the potential to become a new credit card if you’re approved, which is why credit score models count them as individual events.

This doesn’t mean you can’t shop around for the best interest rate on a credit card — you can. You just have to take a different approach.

The internet is your friend in this case, and there are a number of tools that will help you compare card offers based on features, fees and interest rates, like our card finder tool. Or, take some of the guesswork out of it by checking to see if you’re prequalified for any credit cards before you apply,

This gives you an easy way to find the best credit card for you —before you apply. Keep in mind, however, that just because a card offers a really low interest rate, it doesn’t necessarily mean you’ll qualify for that rate unless you have excellent credit.

Q&A Video: How Many Credit Inquiries Is Too Many?

Removing Unauthorized Inquiries

If you find hard inquiries listed on your credit report that you did not initiate, you can have them removed by making a request in writing to the lender that initiated the inquiry.

In your letter, remind the lender that you must authorize these types of inquiries under the Fair Credit Reporting Act and ask them to remove the unauthorized inquiry or to provide proof that the inquiry was authorized by you.

Or, you can dispute the item on your credit report by contacting the credit bureaus.

If your credit report shows multiple credit inquiries that you did not authorize, that could indicate that someone has stolen your identity and you should contact the credit reporting agencies as soon as possible if that’s the case.

Soft Credit Inquiries

Unlike hard inquiries, soft inquiries don’t impact your credit scores. 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.

Credit card companies creating a “pre-approved” credit card offer will conduct a soft inquiry to see whether they want to send that offer to you. Whenever you check your credit report 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 your credit has gotten better, the creditor might extend your line of credit or offer you new products with lower interest rates.

If your credit has gotten worse, the 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.

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 at 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.

However, if you look a little deeper at the reason behind why credit card companies are regularly monitoring the health of your overall credit reports it can help you to better understand the practice. Of course, understanding the practice may not make you feel any happier that it’s occurring, but at least knowing why it happens is better than being in the dark.

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 over extended 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 (i.e. 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
  • Canceling credit cards

Consequences of Changes to Your Credit Report

Prior to the passage of the CARD Act in 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. Plus, if you engage in this great credit management technique, your credit scores and your wallet will thank you as well.

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