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Hard Credit Inquiry: How They Impact Your Score and What You Can Do About It
- Danielle Burton
- Jul 1
- 10 min read
When going through the auto loan application process, applying for a credit card, or even checking out pre-approved offers, you may come across the terms soft credit check or hard credit inquiry. Understanding the types of inquiries—and how they affect your credit score—is key to making smart decisions about your financial future.
While a soft credit inquiry (or soft pull) is typically used for things like background checks, pre-approvals, or reviewing your credit behavior, a hard inquiry is triggered when you submit an actual application for credit, such as for a mortgage, personal loan, or auto finance product. These credit score drops can seem minor at first, but over a period of time, they may add up depending on your payment history and how often you apply.
In this blog, we’ll break down what hard credit checks are, how they differ from soft credit checks, and the variety of reasons they might appear on your report, especially during auto finance applications. We’ll also explain how inquiries from an auto loan or any other loan application process can impact your score differently depending on your individual situation and the time period in which multiple inquiries occur.
You’ll learn how to maintain excellent credit by practicing healthy credit habits, monitoring your monthly payments, and understanding the grace period for multiple inquiries related to rate shopping. Whether you’re just starting to build credit or fine-tuning an established profile, we’ll show you how to protect your financial situation from unnecessary hits while keeping your credit healthy from time to time.
Let’s dive into how to manage credit inquiries and safeguard your score confidently.
Road Map:
What is a Hard Credit Inquiry?
A hard inquiry, also known as a hard pull, happens when a lender or financial institution checks your credit report because you’ve applied for credit, such as a loan or credit card.
This is done to assess your creditworthiness, meaning they want to see how likely you are to repay the money you borrow. Unlike a soft inquiry, which might happen when you check your credit or when a company pre-approves you for an offer, a hard inquiry requires your permission. Each hard inquiry gets recorded on your credit report and can slightly affect your credit score. It's important because it shows that you are seeking new credit, which lenders consider when deciding whether to approve your application.
What are Common Hard Inquiries?
Common hard inquiries occur when you apply for various credit or financial services.
These include:
Credit Card Applications: When you apply for a new credit card, the issuer performs a hard inquiry to check your creditworthiness.
Personal Loans: Applying for personal loans triggers a hard inquiry as lenders need to assess your credit situation.
Auto Loan Applications: When you apply for a car loan, the lender conducts a hard inquiry to review your credit history and make a lending decision.
Mortgage Loans: Mortgage applications involve a thorough review of your credit report, resulting in a hard inquiry.
Student Loans: Applying for student loans can also lead to hard inquiries as lenders evaluate your creditworthiness.
In addition to these common types of loans, hard inquiries can occur in other situations:
Rental Applications: Landlords often perform background checks, including hard inquiries, to ensure you’re a reliable tenant.
Credit Limit Increases: Requesting a credit limit increase on an existing credit card may result in a hard inquiry.
Lines of Credit: Applying for lines of credit, such as home equity lines, can also lead to hard inquiries.
Insurance Companies: Some insurance companies check your credit report when you apply for a policy.
Collection Agencies: In certain situations, collection agencies may perform hard inquiries when reviewing your credit history.
Each action prompts potential lenders or service providers to perform a credit search, reviewing your credit report to assess your creditworthiness. This process requires lender permission and results in a hard inquiry being recorded on your credit report. It's important to manage these inquiries carefully over some time to avoid a drop in credit score and maintain a healthy credit profile, ensuring that future credit applications and approval decisions are not negatively impacted.
How Do Hard Inquiries Affect Your Credit Score?
Hard inquiries can have a small but important impact on your credit score. When a lender performs a credit search, it indicates that you are seeking new credit, which can signify financial risk to potential lenders. Each hard inquiry can lower your credit score by a few points, typically between 5 to 10 points. While a single hard inquiry might not make a big difference, multiple hard inquiries within a short period can add up and have a more noticeable effect.
Here are some key points to understand:
Impact on Credit Health: Each hard inquiry reflects a credit pull, which can slightly decrease your credit score. The cumulative effect of multiple inquiries over a short period can indicate that you might be taking on too much debt, raising concerns about your ability to make payments on time and manage your credit obligations effectively.
Types of Credit Checks: Hard inquiries differ from soft inquiries, which do not affect your credit score. Soft inquiries occur when you check your credit report or when insurance companies and employers conduct background checks.
Credit Scoring Models and Rate Shopping: Credit scoring models often recognize when you rate shopping for a mortgage, auto, or student loan. During these periods, multiple loan inquiries within a short timeframe (usually 14 to 45 days) are treated as a single inquiry to minimize the negative impact on your score. This grace period helps consumers compare loan options without significantly hurting their credit.
Long-Term Effects: While hard inquiries stay on your credit report for two years, their impact on your credit score diminishes over time, especially if you maintain a clean credit report, pay your bills on time, and avoid bad credit habits.
By understanding how hard inquiries affect your credit score, you can better manage your credit applications and maintain a healthy credit profile, ensuring that future credit applications and lending decisions are not negatively impacted.
How Long Does a Hard Inquiry Stay on Your Credit Report?
A hard inquiry stays on your credit report for up to two years. However, its impact on your credit score is usually the most significant within the first year. After the first year, the effect on your score typically lessens and eventually fades. During this time, lenders can see the inquiry and may consider it when evaluating your creditworthiness. It's important to be mindful of how often you apply for new credit because each hard inquiry adds to the record and can affect your ability to get approved for loans or credit cards.
How Many Hard Inquiries Is Too Many?
Too many hard inquiries on your credit report can be a red flag for lenders. Generally, one or two inquiries within a year are considered normal and shouldn't significantly impact your credit score. However, suppose you have several hard inquiries within a short period. In that case, it can suggest that you are desperate for credit or taking on too much debt, which may lower your credit score and make lenders hesitant to approve new credit applications. As a rule of thumb, try to limit the number of hard inquiries to no more than three to five in a year to maintain a healthy credit profile. Remember, multiple inquiries for the same type of loan, such as a mortgage or auto loan, within a short period are usually treated as a single inquiry, which helps minimize their impact on your credit score.
How Should You Plan Before Shopping for a Loan?
Before shopping for a loan, planning carefully to minimize the impact on your credit score and improve your chances of approval is essential.
Here are some key steps to follow:
Check Your Credit Report and Score: Understand your current credit standing by reviewing your credit report for errors or issues like late payments or high credit card balances that could negatively affect your score.
Research Lenders and Loan Options: Look for lenders and loan products that match your needs and credit profile. This helps you find the best terms and rates.
Consider Pre-Qualification or Pre-Approval: These processes usually involve a soft inquiry that won’t affect your credit score and can give you an idea of what you might qualify for.
Time Your Applications Strategically: If applying for a mortgage, auto loan, or student loan, try to complete all applications within a short period (usually 14 to 45 days, depending on the scoring model). Multiple hard inquiries within this timeframe will be treated as a single inquiry, minimizing the impact on your credit score.
By following these steps, you can make informed decisions and protect your credit while shopping for a loan.
How Can You Limit the Impact of Credit Inquiries?
Limiting the impact of credit inquiries on your credit score is crucial for maintaining a healthy credit profile. Here are some effective strategies to manage credit inquiries:
Limit or Spread Out Your Credit Applications: Avoid applying for multiple credit accounts quickly. Each hard inquiry can lower your score, so spacing out your applications over several months can reduce the cumulative impact. This approach helps quickly prevent a significant drop in your credit score from numerous inquiries.
Dispute Any Errors: Regularly check your credit report for inaccuracies or unauthorized hard inquiries. If you find any errors, dispute them with the credit bureau immediately. Correcting these mistakes can help improve your credit score and ensure your report accurately reflects your credit activity.
Use Pre-Qualifications When Available: Many lenders offer pre-qualification or pre-approval processes using soft rather than hard inquiries. Soft inquiries do not affect your credit score. By using pre-qualification, you can see potential loan offers and interest rates without impacting your score, allowing you to make better-informed decisions before officially applying.
Understand the Exceptions: Credit scoring models treat some credit inquiries differently. For example, when you shop for a mortgage, auto loan, or student loan, multiple inquiries within a short period (usually 14 to 45 days) are typically counted as a single inquiry. This exception allows consumers to compare rates without significantly harming their credit scores. Knowing this can help you plan your applications more strategically.
By following these strategies, you can better manage the number of hard inquiries on your credit report and protect your credit score.
Bottom Line
Understanding the role of hard credit inquiries and how they differ from soft credit checks is crucial for protecting your credit health and navigating the auto loan application process or any application for credit with confidence. By spacing out applications, leveraging soft pulls or pre-approved offers, and being aware of the grace period provided for rate shopping, especially for auto finance and mortgage loans, you can reduce the risk of a credit score drop.
Being proactive, like disputing credit report errors, limiting the number of inquiries over a short time period, and understanding which actions trigger soft credit inquiries versus hard ones, can strengthen your overall financial situation. These small steps play a significant role in how lenders view your credit behavior and help ensure your individual situation is evaluated favourably during the loan application process.
Maintaining healthy credit habits, such as making monthly payments on time and checking your credit regularly, is key to preserving excellent credit. Whether dealing with auto finance applications, insurance quotes, or rental screenings, being strategic about the types of inquiries on your report can influence approvals and the terms you’re offered.
Ultimately, knowing when and why credit checks occur, from soft checks done from time to time to hard inquiries tied to specific credit applications, empowers you to make smart decisions. Protect your credit by managing inquiries wisely, staying current on payments, and reviewing your report often. These habits will help you avoid unnecessary damage to your credit and keep your financial profile in top shape for whatever comes next.
Frequently Asked Messages
What is a Hard Inquiry?
A hard inquiry, also known as a hard pull, occurs when a lender or financial institution checks your credit report as part of their decision-making process for a credit application. This can slightly impact your credit score and is recorded on your credit report.
How Does a Hard Inquiry Affect My Credit Score?
A hard inquiry can lower your credit score by a few points, typically between 5 to 10 points. The impact is more significant if you have multiple inquiries quickly, as it can suggest you are taking on too much debt.
How Long Does a Hard Inquiry Stay on My Credit Report?
A hard inquiry stays on your credit report for up to two years. Its impact on your credit score is most significant in the first year and gradually lessens over time.
How Many Hard Inquiries Is Too Many?
Having one or two hard inquiries within a year is generally acceptable and shouldn't significantly impact your credit score. However, having several inquiries quickly can be a red flag for lenders and can lower your score.
What are Common Hard Inquiries?
Common hard inquiries occur when you apply for credit cards, personal loans, auto loans, mortgages, and student loans. They can also happen when renting an apartment or requesting a credit limit increase.
How Should I Plan Before Shopping for a Loan?
Before applying for a loan, check your credit report and score, research different lenders and loan options, consider pre-qualification processes and time your applications strategically to minimize the impact of hard inquiries.
How Can I Limit the Impact of Credit Inquiries?
You can limit the impact by spacing out your credit applications, disputing any errors on your credit report, using pre-qualifications when available, and understanding exceptions for rate shopping on mortgages, auto loans, and student loans.
What is the Difference Between a Hard Inquiry and a Soft Inquiry?
A hard inquiry occurs when a lender checks your credit report for a credit application and can affect your credit score. A soft inquiry happens when you check your credit or when a lender pre-approves you for an offer, and it does not affect your score.
Can I Remove Hard Inquiries from My Credit Report?
If a hard inquiry on your report is unauthorized or an error, you can dispute it with the credit bureau to have it removed. Otherwise, legitimate hard inquiries cannot be removed but will lessen the impact over time.
Important Note: This article and its resources are purely for informational use. They do not reflect the offerings of specific companies or lenders. Our goal is to provide knowledge and insights for better financial decision-making. We recommend conducting in-depth research and seeking professional advice before making any financial decisions. SafeLend Canada, while not a lender, collaborates with various lenders to assist clients in refinancing their auto loans.
