How Credit Inquiries Impact Your Credit

Happy woman writing on a piece of paper, symbolizing the impact of credit inquiries on your credit score.

To understand how credit inquiries affect your credit, it’s important to distinguish between “soft” and “hard” pulls. Both types can influence your credit health and eligibility for favorable financing, though they affect your credit score in different ways. Let’s explore these differences and their effects on your credit profile.

What Are Credit Inquiries?

Credit inquiries are requests from lenders or creditors to review your credit report to gauge your creditworthiness. These inquiries usually happen when you apply for credit, like a car loan, credit card, mortgage, or personal loan. Knowing the difference between types of inquiries helps you manage your credit wisely.

Soft Credit Pulls

Soft credit pulls, or “soft inquiries,” don’t affect your credit score. They are generally informational and don’t involve an in-depth review of your credit. Common examples of soft pulls include:

  1. Checking your own credit: Viewing your own credit report is considered a soft inquiry and has no impact on your score.
  2. Pre-approval offers: Lenders and credit card companies often conduct soft inquiries to determine if you’re eligible for pre-approved offers without affecting your score.
  3. Background checks: Employers and landlords may use soft checks during screening, which don’t influence your credit.

Soft inquiries are common and harmless, offering a way to track your financial health without hurting your credit.

Hard Credit Pulls

Hard credit pulls, or “hard inquiries,” have a more notable effect on your credit score. These inquiries occur when you apply for new credit, such as an auto loan or mortgage, and lenders conduct a comprehensive credit review. Here are key points to know about hard inquiries:

  1. Credit applications: A lender typically performs a hard inquiry to assess your credit history when you apply for a loan.
  2. Score impact: Each hard inquiry can cause a temporary dip in your score, usually by a few points. Several inquiries in a short time can signal financial instability, potentially affecting your creditworthiness.
  3. Duration on your report: Hard inquiries remain on your credit report for two years, though their impact on your score lessens over time if you responsibly manage your credit.

Managing Credit Inquiries

Now that you know the difference between soft and hard inquiries, here are tips to handle them smartly:

  1. Limit credit applications: Avoid excessive applications, especially when planning for a major purchase. Each hard inquiry can reduce your score.
  2. Monitor your credit: Regularly check your credit report for accuracy and unauthorized inquiries.
  3. Strategize credit shopping: When shopping for loans, aim to apply within a short period, typically 14 to 45 days. Many scoring models treat multiple inquiries within this window as one inquiry, reducing impact.
  4. Build a strong credit history: Good credit habits—timely payments, low balances, and selective credit applications—can minimize the effects of hard inquiries.

In the realm of auto financing, understanding credit inquiries is essential. While soft inquiries allow you to monitor your credit health, hard inquiries can impact your score when applying for new credit. By managing inquiries wisely, you can safeguard your credit and improve your chances for favorable financing options.

Pre-qualifying with CreditYES only requires a soft credit pull, so it won’t impact your credit score. Get Pre-Qualified today!