How Many Hard Inquiries in a Year Is Too Many?
Understand how credit applications influence your financial standing and learn effective strategies to manage their impact on your score.
Credit inquiries play a role in an individual’s financial standing, impacting credit reports and scores. Understanding how these inquiries function is important for anyone navigating personal finance. This knowledge helps in making informed decisions, especially when considering new credit opportunities.
What is a Hard Inquiry
A hard inquiry, also known as a hard pull or hard credit check, occurs when a lender or company formally requests to review your credit report as part of a credit application process. This typically happens when you apply for new credit, such as a credit card, a mortgage, an auto loan, or a personal loan. You generally provide authorization for these inquiries during the application, as lenders use them to assess your creditworthiness and determine the risk associated with lending to you.
In contrast, a soft inquiry, or soft pull, happens when your credit is checked for informational purposes and does not impact your credit score. Examples include checking your own credit report, pre-approved credit offers from lenders, or background checks by employers or insurance companies. While soft inquiries may appear on your credit report, they are typically only visible to you and do not influence your credit score.
How Hard Inquiries Affect Your Credit Score
Hard inquiries can temporarily affect your credit score, though the impact is generally minor, often reducing a FICO score by fewer than five points. This effect is usually short-lived, with the score impact typically lasting up to 12 months, even though the inquiry remains on your credit report for up to two years. The exact impact can vary based on your overall credit profile, with individuals having a limited credit history potentially experiencing a slightly greater effect.
Credit scoring models recognize that consumers often shop around for the best rates on certain types of loans. For mortgages, auto loans, and student loans, multiple inquiries within a specific timeframe are treated as a single inquiry. This “rate shopping” window typically ranges from 14 to 45 days, depending on the scoring model used. This special treatment does not apply to credit card applications, where each application results in a distinct hard inquiry.
Strategies for Managing Hard Inquiries
Managing hard inquiries effectively involves thoughtful planning before applying for new credit. Apply for credit only when there is a genuine need, as each application typically results in a hard inquiry. Applying for multiple different types of credit simultaneously, such as a credit card, personal loan, and auto loan, can signal increased risk to lenders and potentially lead to a greater negative impact on your score.
When shopping for installment loans like mortgages or auto loans, group your applications within a short timeframe. Credit scoring models typically treat multiple inquiries for the same loan type within a 14- to 45-day window as a single inquiry, minimizing the cumulative effect on your score. This allows you to compare interest rates and terms from various lenders. For credit cards, space out applications by at least six months, as these inquiries are usually not grouped.
Regularly checking your credit report is an important practice for managing inquiries. You are entitled to a free copy of your credit report from each of the three major credit bureaus annually. This allows you to identify and dispute any unauthorized or erroneous hard inquiries, such as those due to identity theft, under the Fair Credit Reporting Act (FCRA). While there is no fixed number of hard inquiries considered “too many,” having six or more within a short period, particularly for general credit cards or personal loans, can be viewed unfavorably by lenders.