Did you know that every time you submit an application for credit, it goes on your credit report? It’s called a hard inquiry and it lets other lenders know that you applied for new credit. This is the case even if you aren’t awarded the new credit.
Too many inquiries can have a negative effect on your credit score. One inquiry is only worth five points, but if you have a lot of them, it can bring your credit score down significantly. So how long do these inquiries remain on your credit report? How long do they affect your credit score? Keep reading to find out the answers.
How Long Inquiries Stay
Inquiries (hard inquiries) stay on your credit report for two years. That means if you apply for a new credit card today, any lender that you apply for new credit with for the next two years will see that application for credit.
The fact that they stay for two years shouldn’t be too alarming, though. In all honesty, it only affects your credit decisions for the next few months. After you’ve had the credit for a while or after time passes following a declined application for credit, lenders don’t really care about it. The effect on your credit score is immediate and has no future effect on your score.
The hard inquiry is just a way to let future lenders know of your application for credit, sort of as a forewarning. It loses its effectiveness as time passes, though.
The Ways Hard Inquiries Hurt Your Credit Score
Now hard inquiries can hurt your credit score in a few ways.
We already discussed that they knock your credit score down five points. Again, that’s not a lot. The only way one inquiry could have a damaging effect on your credit score is if your score is near the minimum score required for a program. For example, let’s say you need a 680 credit score for a loan program and you have a 680 score right now. Once you apply for new credit and have a new inquiry, your score may drop to 675. That may be just enough for the lender to decline your application.
Hard inquiries also alert lenders of new outstanding credit. If you happen to apply for new credit shortly after the hard inquiry reported on your credit report, lenders are going to be wary of giving you new credit. This is especially true if the new account that corresponds to the hard inquiry isn’t reporting on the credit report yet. There could be more debt out there that you have that isn’t on your credit report. This could hurt your debt ratio and your ability to secure new loans.
Finally, hard inquiries can make you look ‘desperate.’ If you have a lot of inquiries within a short period, it could show lenders that you are trying to get your hands on new money. This could make lenders hesitate to give you a new loan. There’s only one exception to multiple inquiries, which we discuss below.
Multiple Inquiries – the Exception to the Rule
Shopping around for a loan with the best terms is not only common, it’s recommended. This would mean multiple inquiries on your credit report in a short amount of time. But this action may not hurt your credit score.
Let’s say you are shopping for a mortgage. You want to apply with three lenders to see how their offers compare. This will put three hard inquiries on your credit report. But, if you do this within a short period, say 2 weeks, the credit bureaus realize that you are shopping around. They will typically only hit your credit score with one inquiry. Now, if you spread out those applications over a period of 3 months, though, it would count as separate inquiries and hurt your credit score each time.
This exception doesn’t work for credit cards, though. If you have multiple inquiries for credit cards within a short period, lenders usually see that as risky or negative.
Soft Inquiries – the Difference
We don’t want you to confuse hard inquiries with soft inquiries. A soft inquiry is one that doesn’t go on your credit report, as it’s not an indication of an application for new credit. Soft inquiries typically occur when:
- You check your own credit
- A potential employer checks your credit
- An insurance company checks your credit
- A credit card company checks your credit for a pre-approval
These inquiries don’t show up on your credit report. This means future lenders won’t even know that the checks occurred. It’s only inquiries that could result in new credit that show up on your credit report.
Hard inquiries technically stay on your credit report for two years, but it’s just information. The immediate damage occurs right after the inquiry shows up on your report. The damage then dissipates over time, serving just as an informational piece to future lenders.