How Long Does a Hard Inquiry Last on Your Credit?
Navigate the nuances of hard inquiries: learn their impact on your credit and how to strategically manage them for a healthier financial profile.
A hard inquiry occurs when a lender or creditor reviews your credit report as part of a credit application, such as for a new loan or credit card. This action signals to credit bureaus that you are seeking new credit, which is a factor in assessing your creditworthiness. Understanding these inquiries is important for managing your financial profile.
Understanding Hard Inquiries
A hard inquiry happens when a financial institution accesses your credit report after you apply for new credit. This occurs for various types of credit, including mortgages, auto loans, personal loans, and credit cards. Your explicit consent is required before a hard inquiry can be made.
In contrast, a soft inquiry takes place when your credit is checked for purposes other than a credit application. Examples include checking your own credit score, receiving pre-approved credit offers, or background checks by employers. Soft inquiries do not affect your credit score and are not visible to lenders, distinguishing them from hard inquiries that can influence your score.
Duration on Credit Reports
Hard inquiries remain visible on your credit report for up to two years from the date they occur. This duration is consistent across the three major credit bureaus: Experian, Equifax, and TransUnion. While the inquiry stays on your report for this period, its impact on your credit score diminishes much sooner.
Credit scoring models, such as FICO, consider inquiries from only the most recent 12 months when calculating your score. This means that after about a year, a hard inquiry will have a minimal to no effect on your credit score, even though it remains listed on your report. Lenders can still see the inquiry for the full two-year period, which offers them a broader perspective on your recent credit-seeking activities.
Effect on Credit Scores
Each hard inquiry can cause a slight, temporary dip in your credit score, often by a few points. For most individuals, a single hard inquiry results in a reduction of less than five points. The exact impact can vary based on your overall credit history, including the length of your credit history and the number of existing accounts.
The effect can be more pronounced if multiple inquiries accumulate within a short timeframe, as this indicates a higher risk to lenders. Individuals with numerous inquiries in a brief period may be perceived as being in greater financial distress. While inquiries contribute to a small portion of your FICO score, around 10%, their influence is less significant than factors like payment history and credit utilization.
Managing Hard Inquiries
To mitigate the impact of hard inquiries, apply for new credit only when necessary. Unnecessary applications can lead to multiple inquiries, which may collectively affect your score more than a single one. Being strategic about when and how you seek credit can help preserve your credit standing.
When shopping for certain loans, such as mortgages, auto loans, or student loans, credit scoring models account for “rate shopping.” This means that multiple inquiries for the same type of loan within a specific timeframe, typically 14 to 45 days, are treated as a single inquiry. This allowance enables consumers to compare offers from various lenders without incurring multiple negative impacts on their credit score.
Regularly monitoring your credit reports for accuracy is important. You can obtain a free copy of your credit report from each of the three major bureaus annually. This allows you to identify any unauthorized inquiries or errors and dispute them, ensuring your credit report accurately reflects your financial activities.