What is a Credit Inquiry?

A credit inquiry, also known as a credit pull, is akin to a financial background check, delving into your credit history. There are two primary types of inquiries: hard inquiries and soft inquiries.

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1. Hard Inquiry

Definition: A hard inquiry occurs when a lender scrutinizes your credit history to assess your creditworthiness.

When is it Made? Typically, hard inquiries are triggered when applying for loans, credit cards, mortgages, or car financing.

Impact on Score: A hard inquiry can lead to a slight and temporary reduction in your credit score. This effect diminishes after twelve months and completely vanishes from your report after two years.

Duration on Credit Report: A hard inquiry remains on your credit report for a duration of two years.

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2. Soft Inquiry

Definition: A soft inquiry takes place when your credit is checked for non-lending purposes, such as pre-approval offers or by potential employers.

When is it Made? Common scenarios include checks by landlords, employers, insurance companies, or for pre-approved credit offers.

Impact on Score: Soft inquiries have no impact on your credit score, and they are only visible to you.

Inquiries & the Three Credit Bureaus

Credit inquiries are managed by three major credit bureaus: TransUnion, Equifax, and Experian. Banks typically pull a credit report from one of these agencies when making credit decisions.

Error on Credit Report

If you discover an error related to a credit inquiry, it is advisable to contact the bank or credit bureau promptly to dispute and rectify the mistake.

Credit Inquiries During Rate Shopping

When actively shopping for rates, multiple hard inquiries are usually treated as a single inquiry by the FICO scoring model, provided they occur within a 45-day window. This provision aims to accommodate consumers seeking the best rates without unduly impacting their credit scores.

Understanding the nuances of credit inquiries empowers individuals to make informed financial decisions while managing and maintaining a healthy credit profile.