How Many Credit Inquiries Are Too Many?
Let’s Learn About: Hard Credit Inquiries
Any hard credit inquiry may affect your credit score negatively, and regular hard inquiries increase this likelihood.
The reason hard inquiries may affect your score is because credit bureaus audit your credit usage and accounts over the span of your credit’s lifetime.
Good credit habits are the best way to stay ahead of negatively impactful credit activity.
How credit inquiries may affect your score
Applying for a credit card, home loan or auto loan typically includes the lender requesting a copy of your credit report to evaluate the risk associated with your credit profile. But, if you’re shopping around for the best credit card or car loan, can too many credit inquiries in a short time affect your credit? The short answer is, yes, but it’s dependent on things like how many inquiries your credit receives in a short period of time and the type of inquiry.
What is a hard inquiry vs a soft inquiry
Credit inquiries can have an effect on your credit score, but not all inquiries are the same and it’s important to know the difference.
- Soft Inquiry. Soft inquiries will not affect your credit score. An example of a soft inquiry: you interview for a job and your potential employer pulled your credit report as part of its screening process.
- Hard Inquiry. This type of inquiry can affect your credit score. An example of a hard inquiry is applying for a credit card. In this case, the issuer pulls your credit report to help evaluate the risk of approving your application.
Per FICO, each hard credit inquiry can have a small impact on your FICO® Score1, and several inquiries over a short time period can have a greater impact on your score than just one. So, if you’re trying to open several credit accounts in a short period of time (like a credit card, mortgage and a car loan), your FICO® Score will likely be affected.
But, if you’re shopping for the best rate on a single auto, mortgage, or student loan over a short period of time, those inquiries are typically counted as one, minimizing their impact on your score.
How long do hard inquiries last?
Credit inquiries remain on your credit report for two years, but your FICO® Credit Score only considers the last 12 months.
Not everyone will be affected by a high number of credit inquiries in the same way, so it’s important to keep track of how many times you’ve applied for credit in the past two years to potentially reduce the risk of your application being rejected.
How good credit habits can help your score
It’s a good idea to try to practice good credit habits year round, but especially if you’re looking to take control of your credit score. Consider making these habits part of your regular financial wellness routine:
- Pay your bills on time
- Pay in full when possible
- Keep track of credit balances
- Avoid maxing-out credit accounts
- Know your credit score
- Monitor your credit report
Credit inquires impact the ‘Status of Accounts’ section of your credit report
Per FICO, the status of accounts section of your credit report is viewed by lenders so they can assess your creditworthiness. It states whether an account is currently open, and provides a comment on the account’s payment. Lenders may view this section to help assess credit risk and determine interest rates on new credit applications.
Your closed accounts will also be listed, with a comment regarding how each account was handled by you while it was open. This will include your payment history on each account and the duration each account was open.
Some common account statuses on credit reports include:
- Pays as Agreed: Account is paid in full monthly as per the terms of the credit agreement.
- Paid/Closed Never Late: This account was paid in full with no late payments, but is now closed.
- Account Paid in Full for Less Than Full Balance or Settled: This means that the account was not paid in full, or was settled for an amount less than owed. It may have a negative impact on your credit score.
- 60 Days/120 Days Past Due: This denotes that an account is open but the minimum payment has not been received and is late. This account status may have a negative impact on your credit score.
Understanding your credit report and its contents is an important part of personal financial wellness. By monitoring your credit report, you can both ensure its accuracy and identify areas of weakness, like adverse credit statuses. In turn, you can take the necessary steps to help your credit score and present a better financial picture to those making inquiries your credit report.
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