Impact of a Hard Inquiry on your Credit

Applying for a home loan means having your credit pulled.  Pulling a credit report results in  a “Hard Inquiry”. While hard inquiries may impact credit scores they also may not hurt your score.

What is a “Hard Inquiry”?

Hard inquiries help lenders determine whether consumer is a good credit risk.  It shows the creditor (ex: mortgage lender) the applicant’s credit score.  Also, lenders see each trade-line on the consumer’s credit.  A hard inquiry may impact a credit score.

Hard Inquiry Impact on a Credit Score

There is no one size fits all answer to this question.  Credit scores are complex. In fact, they are based on detailed algorithms. Hard inquiries indicates a creditor is considering approving a loan or credit line.  As a result, a credit score takes the hard inquiry into consideration.

For example, consider a person with an 820 credit score and a spotless credit history. A hard inquiry likely will not affect their credit score at all.   However, in contrast, a person with a 580 credit score may see their score drop 3-5 points from a hard inquiry.  This is the credit scoring systems way of letting other creditors know this person is possibly not a good credit risk.

Multiple Credit Inquiries Impact on Credit Score

Typically multiple inquires in the same industry in a short period of time will not dramatically impact a borrower’s credit score.  Click here for more on multiple credit inquiries. On the other hand, many inquiries across different industries may drop one’s credit score.

How Long do Credit Inquires Remain on Your Credit Report?

Credit inquiries are tracked for 24 months on a credit report. However, FICO credit score algorithms strongly factor inhard inquiries from the past 12 months into a credit score. In other words, while inquiries hang around for 2 years their impact lightens after 1 year.