Understanding Hard Inquiries and Their Impact on Your Credit Score

When it comes to managing your credit score, understanding the nuances of hard inquiries is crucial. At O1ne Mortgage, we believe in empowering our clients with the knowledge they need to make informed financial decisions. If you have any questions or need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Let’s dive into the world of hard inquiries and how they can affect your credit score.

What Is a Hard Inquiry?

A hard inquiry, also known as a hard pull, occurs when a lender or creditor checks your credit report to make a lending decision. This process involves pulling your credit report from one or more of the major credit bureaus—Experian, TransUnion, and Equifax. It’s important to note that credit bureaus only provide credit reports to entities with a legally defined permissible purpose, such as in response to a credit application.

Here are some key points about hard inquiries:

• They generally happen after you apply for credit. Even if your application is denied, the hard inquiry can still affect your credit score.
• They only get added to the report that’s checked. For example, if a creditor checks your Experian report, the hard inquiry will only appear on your Experian credit file.
• They’re a minor scoring factor. While a hard inquiry might hurt your credit score, the impact is usually small and temporary.
• Some hard inquiries won’t hurt your scores. Credit scoring models consider rate shopping as positive behavior, so multiple inquiries within a short period are often grouped into one.
• They aren’t permanent. Hard inquiries are removed from your credit reports after two years.

How Do Hard Inquiries Impact Your Credit Score?

The impact of a hard inquiry on your credit score can vary. In some cases, it may have no impact, while in others, it could cause a small drop of 10 points or less. The exact effect depends on the overall context of your credit report and the type of credit score being used (FICO® Score or VantageScore®).

FICO® Scores and Hard Inquiries

FICO® Scores have specific rules regarding hard inquiries:

• Considers hard inquiries from the past 12 months: FICO® Scores only take into account hard inquiries from the previous 12 months, even though they remain on your report for two years.
• Applies a 30-day buffer: Hard inquiries from student, auto, or home loan applications within the past 30 days are not considered.
• Deduplicates specific hard inquiries: Multiple hard inquiries from the same type of application within a 45-day window are treated as a single inquiry.

VantageScore® Scores and Hard Inquiries

VantageScore® takes a slightly different approach:

• Counts inquiries from the previous 24 months: VantageScore® considers hard inquiries for the full two years they are on your report, but their impact diminishes over time.
• Deduplicates most hard inquiries: Inquiries within a 14-day window are generally treated as one, even if they are from different types of credit applications.

How Many Hard Inquiries Is Too Many?

There’s no strict rule for how many hard inquiries are too many. The impact of multiple inquiries can be mitigated by the credit scoring models’ rules for rate shopping. For instance, if you’re shopping for a new car and apply for auto loans from various lenders within a short period, these inquiries will be grouped as one.

However, it’s wise to be cautious. A new hard inquiry can hurt your credit scores even if you’re not approved for the credit. Additionally, FICO® Scores do not deduplicate inquiries from applications that aren’t for student, auto, or mortgage loans, so applying for multiple credit cards at once is best avoided.

How to Avoid Too Many Hard Inquiries

To minimize the impact of hard inquiries on your credit score, consider the following strategies:

• Rate shop during a 14-day period: Group your applications for auto, home, or private student loans within a 14-day window to limit the impact on your credit scores.
• Get preapproved for personal loans and credit cards: Preapprovals often involve a soft credit check, which doesn’t affect your credit scores.
• Focus on other important scoring factors: Paying your bills on time and reducing your credit utilization ratio can have a more significant positive impact on your credit scores than occasional hard inquiries.

How to Remove Inaccurate Inquiries From Your Credit Report

While you can’t dispute or remove legitimate hard inquiries, you can take action if you notice inaccurate inquiries on your credit report. Sometimes, a company’s name may appear unfamiliar due to abbreviations or parent company names. However, if you suspect fraud, you have the right to dispute the inquiry and any related fraudulent information.

To dispute inaccurate hard inquiries on your Experian credit report, you can do so online. For other credit bureaus, you may need to contact them by phone or mail.

Monitor Your Credit for New Inquiries

Regularly monitoring your credit report can help you stay on top of new inquiries and other changes. At O1ne Mortgage, we recommend checking your Experian credit report for free and taking advantage of complimentary credit report monitoring with real-time alerts. This way, you’ll be notified of any new hard inquiries and can track how they affect your FICO® Score.

Remember, building good credit is essential, but it’s also important to use it wisely. If you have any questions or need assistance with your mortgage needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the complexities of credit and achieve your financial goals.