When it comes to applying for credit, it’s important to understand the basics of credit inquiries. A credit inquiry is a request made by a lender or creditor to review your credit report to help determine your creditworthiness.
There are two types of credit inquiries, hard inquiries and soft inquiries. A hard inquiry occurs when a lender or creditor reviews your credit report as a result of an application for credit, such as a credit card or loan. Hard inquiries can have a negative impact on your credit score, and too many hard inquiries in a short period of time can signal to lenders that you are a high-risk borrower.
On the other hand, a soft inquiry is a review of your credit report that does not result from an application for credit. Soft inquiries can occur when you check your own credit report, when a creditor reviews your credit report as part of a pre-approved offer, or when lenders or employers conduct background checks. Soft inquiries do not affect your credit score and are not visible to lenders or creditors.
It’s important to understand the difference between hard and soft inquiries and to limit the number of hard inquiries made on your credit report. Before applying for credit, do your research and compare offers from different lenders to find the best rates and terms. Too many hard inquiries can damage your credit score and make it difficult to obtain credit in the future.
It’s also important to monitor your credit report regularly and know what factors are affecting your credit score. Credit inquiries typically remain on your credit report for two years, but their impact on your score decreases over time. Keep in mind that not all inquiries are created equal – some lenders may only check your credit report with a soft inquiry, while others may require a hard inquiry as part of the application process.
Overall, understanding credit inquiries can help you make informed decisions when it comes to applying for credit. Keep track of your credit report and avoid excessive hard inquiries to maintain a healthy credit score and strengthen your financial profile.