Many people are under the impression that credit inquiries do not affect credit scores. Take a look at your past credit reports—all inquiries made within a specific time frame should reflect on your credit reports. But the question is, how do they affect your credit score?
There are generally two types of credit inquiries: hard and soft inquiries. Hard inquiries include cases where lenders or institutions have to access a loan applicant’s credit reports. Having multiple hard inquiries may drag down your score.
On the other hand, accessing your credit records for personal reasons count as soft inquiries, and they do not affect your credit score—no matter how many soft inquiries you make.
Having multiple hard inquiries from different lenders indicates that a debtor does not have enough sufficient cash flow to purchase necessities and has to resort to loans. The bureau sees these clients as a risk. Generally, they only grant loans to debtors who can afford monthly payments for the entirety of the desired term length.
Hard inquiries tend to affect those with multiple accounts worse. For example, if you belong to the majority of Americans who own four or more credit cards, you might want to limit the number of hard inquiries you get. Only open a new loan account when needed. Otherwise, you might see a steady decline in your credit score—especially if you have bad credit reports.
Pro Tip: You can bring your credit score back up by following debt reduction strategies and reducing your revolving debt.
Credit bureaus ignore multiple hard inquiries made within 30 to 45 days, especially if they come from the same loan account applications. This simply indicates that the debtor is rate shopping.
Should you avoid applying for a new loan account? No! Just because hard inquiries affect your credit score does not mean you should forego any kind of loan application altogether. There’s nothing wrong with having one or two hard inquiries. Credit bureaus only see them negatively if the debtor makes consecutive hard inquiries for varying loan accounts.
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