How can hard inquiries affect your credit report?

Sometimes consumers are afraid of checking their credit reports as they worry about the influence it will have on their credit scores. Although checking your own credit report will in fact lead to an inquiry, it will not have an impact on your credit score. Moreover, knowing what information is in your credit report could help you get used to monitoring your financial accounts properly.

It’s important to understand how inquiries work and what is considered a “hard” inquiry.

When a bank or company wants to review your credit report during the loan application process, such a request will be included into your credit report as a hard inquiry and will affect your credit score. Meanwhile, a “soft” inquiry, which is recorded when a promotional credit card is given or when you check your own report, doesn’t affect the credit score.

Hard inquiries are considered to be a timeline of your credit applications. They remain in your report for 2 years, but influence the score only for a year. Depending on a situation, hard inquiries can point to different features for different lenders.

For instance, recent hard inquiries on your credit report mean that you are looking for a new credit, and it may be important for a potential lender when reviewing your creditworthiness.

In case you are searching for a new car loan or a mortgage, or a new utility provider, the multiple inquiries are usually counted as one inquiry for a limited period of time, which depends on the credit scoring model used and varies from 14 to 45 days in case of a mortgage request. As a result, you can check various lenders and choose the best option available. Mortgage brokers have an additional advantage since in most of the cases they pull your credit report only once and have the ability to send it to the unlimited number of lenders without creating additional hard inquiries.

Although all new auto or mortgage loan or utility inquiries are included into your report, only one of them affects the credit score.

However, this rule doesn’t apply to other loan types, e.g. credit cards.

It’s always better to review your finances before looking for a loan.

First of all, find out if the hard inquires for the type of credit you’re applying for can be treated as one inquiry.

Then, try to check your credit before you start shopping, as you need to know what information is in your report. You can get a free copy of your credit reports every 12 months from each of the three national credit bureaus by ordering it at Equifax or TransUnion Canada web-sites.

In case you worry about the influence of multiple hard inquiries on your credit report, you may think it’s a good idea to settle down with the first offer just to avoid the multiple inquires. Nevertheless, it’s always better to consider your individual situation thoroughly before you stop shopping around. Often, the influence of hard inquiries on your credit score is less significant than the long-term benefits of a loan with the best terms.

The more you know about what happens when you apply for a loan and how hard inquiries affect your credit score, the more you are prepared for the entire process.