In this day and age, a huge portion of your purchasing power is based on credit, credit scores, and credit reports. A huge amount of purchases nationwide are made through some form of credit, whether it’s loans, credit cards, or mortgages. According to USA Today, the average credit debt of an American is around $6,200 – excluding mortgages.
So, credit scores and reports are important. They dictate your buying power to an extent. Various things can affect your score, including visible hard inquiries on your report. Let’s take a look at “hard inquiries,” what they are, and why they are important factors to note when tackling your credit score.
What is a Hard Inquiry?
First, it’s important to understand what a hard inquiry is and why they exist. Hard inquiries are often referred to as hard pulls, with both terms meaning the same thing. If you want to learn about credit inquiry removal, you will find more on that later. But first, you need to understand why you may find one on your report in the first place.
Simply put, a hard inquiry is when a lender or creditor looks through your credit report to see if you are suitable for a loan or credit card. They will only do this when you apply for a new line of credit. Also, these inquiries can only take place if you approve or allow the lender to do so. This usually happens during the application phase of a new credit card, loan, mortgage, or other credit agreement. Creditors may look at your report even if you are only applying for a small loan. They want to be sure that they have cross-referenced your spending levels and ability to pay back whatever they lend you.
What is Your Credit Score and Report?
But, what are they looking at on your credit score? In many cases – everything! Say you seek a new credit card with a $20,000 limit. You’ll let your lender know how much you earn, how much your partner earns, and what you plan on using the card for. This is, in theory, enough information for them to know whether you’re “good” to pay the $20k back. However, they want to double-check. So, they’ll look through your credit report to check how much you currently have borrowed, how regularly you pay things back, how many lines of credit you have, and any other finance-related report.
Hard Enquiry = Score Affected
It seems strange, but even having these hard inquiries can affect your credit score. Despite the fact that you are only requesting new credit, this is noted as part of your report. So, if you’re denied by one lender, this will show up on your credit score, most likely reducing it further. This can be a real catch-22 situation, as regularly asking for credit and being denied makes you look even less attractive to new lenders. This can push offers down – for example, only being approved for $2,000 credit instead of $20,000 – or it can push interest rates up extremely high. You may only be offered a low limit but with a huge rate of interest. Not ideal.
However, there are some caveats to note. A hard inquiry knocks about 5 points off of your score. Not too drastic, then. Also, you can search for as many lines of credit as you like within 45 days and this will count as a single inquiry. So, if you’re shopping for offers, you won’t damage your score further. Finally, a hard inquiry will stay on your report for around 2 years, but your score will have usually jumped back up after less than a year. So, you’re looking at 10-12 months’ worth of reduced points thanks to a hard inquiry.
Removal of a Hard Inquiry
So, if you don’t want your credit score affected, what can you do? Believe it or not, you can remove these inquiries from your report. You also remove late payments from credit report. There are two ways of doing this. Firstly, you could hire a credit repair service to do the work for you. This may cost a few bucks, but they may be able to have negative things removed from your credit report within 24 hours, showing an instant score boost.
Aside from this, you can request to have them removed yourself. Firstly, you’ll need to get credit reports (they’re free once per year from every credit reporting agency). Get reports from all the major brands and cross-reference them. Then, choose which credit checks you view as unauthorized or unnecessary on your report, and write to each agency asking for them to be removed. A simple letter stating which inquiries were unauthorized or not requested should do the trick, and you’ll often see them removed from your report within a couple of weeks.
Benefits of Good Credit
We’ve spoken of the risks of poor credit on your report, but why does it matter to have good credit? You may think it’s not worth the hassle, especially if you have no plans to borrow money any time soon. However, having a great credit score is always a smart thing to keep track of. What if you have an emergency and don’t have enough in your budget to cover it? Even if you only need to borrow a few hundred dollars, a poor credit score could make that hard. Compound that with the increased interest you’ll have to pay, and you could end up spiraling into debt. Holding a high credit rating puts you on solid ground should you ever decide to move home, buy a new car, or deal with emergency medical bills or otherwise.
So, hard inquiries are quite simple to understand. They are checks to see if you are viable for new credit, while they also show that you’re on the hunt for a loan or credit card. Removing them is easy if you feel the need to, however, if you’re in no hurry, they only affect your score for a short amount of time.