Hard Credit Inquiries Impact
Hard Credit Inquiries Overview
Applying for a home mortgage requires that a mortgage lender generate a credit report. Pulling a new credit report results in what is known as a “Hard Inquiry” on the loan applicants credit report. There are many misconceptions out there relative to how hard inquiries impact a borrowers credit score.
What is a “Hard Inquiry”?
A hard inquiry (as opposed to a “soft inquiry”) is one used for the purpose of determining whether or not a consumer is a good credit risk. This type of inquiry shows the creditor (ex: mortgage lender) the applicant’s credit score. It also shows each of the tradelines that currently appear on their credit. A hard inquiry may impact a consumer’s credit score.
Hard Inquiry Impact on a Credit Score
There is no one size fits all answer to this question. Credit scores are complex and based on detailed algorithms. To a credit score, a hard inquiry indicates a creditor is considering approving a loan or credit line. Then, a credit score (more accurately the credit agency scoring algorithms) will take that hard inquiry into consideration along with that person’s overall credit profile and determine what both combined says about the person.
For example, if a person with an 820 credit score with a spotless credit past receives a hard inquiry the credit score algorithm may not drop their score at all. In contrast, if a person with a 580 credit score receives a hard inquiry their score may drop 3-5 points. While this may seem unfair to “pick on” the person with lower scores it is the credit score algorithm’s way of letting other creditors know this person is possibly not a good credit risk.
Multiple Credit Inquiries Impact on a Person’s Credit Score
Typically multiple inquires in a short period of time will not dramatically impact a borrower’s credit score as long as the inquiries are made within the same type of industry. Click here for more information on this topic.
How Long do Credit Inquires Remain on Your Credit Report?
Credit inquiries are tallied or kept track of for 24 months on a credit report. However, FICO credit score algorithms (which are what many mortgage lenders use) only significantly factor hard inquiries from the past 12 months into a consumer’s credit score.
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By Jeremy House