Why do credit checks hurt your credit score? 

Jackie Lam
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Jackie Lam
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Why do credit checks hurt your credit score?

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If you’ve ever been in the market for a car loan, personal loan, or credit card, you’ve probably noticed your credit score dip when you apply. 

Why do certain types of credit checks hurt your credit score, and others don’t? This often comes down to hard versus soft credit inquiries. We break down the differences between the two, why credit inquiries can raise red flags for lenders, and what you can do to prevent hard inquiries from hurting your credit. 

What is a hard credit inquiry? 

Before digging into the weeds on why hard credit inquiries can lower a credit score, we’ll need to first define what exactly a hard inquiry is. 

Lenders and creditors pull a hard inquiry when you officially apply for a line of credit or loan. 

Hard inquiries impact your credit because lenders and creditors are looking at two things: how often you’ve applied for credit and how recently you’ve applied for credit. Hard inquiries usually linger on your credit report for two years. However, they usually only impact your score for a year and only by about five points, so the damage, if any, is often minimal. 

Hard credit inquiry vs. soft credit inquiry 

While hard credit inquiries are pulled when you apply for a line of credit or financing, a soft inquiry includes instances when your credit file is being reviewed. Prescreening or prequalification, when lenders look over existing accounts, or when you request your annual credit report all fall under this camp. 

While hard pulls can hurt your credit score, soft inquiries do not. Because soft inquiries are requests to review your credit file and aren’t linked to applying for credit, they’re deemed less risky and won’t affect your credit. 

Here are some examples of hard inquiries versus soft inquiries:

Soft Credit Inquiry

Hard Credit Inquiry

Credit card application

No

Yes

Mortgage application

No

Yes

Student loan application

No

Yes

Apartment rental application

No

Yes

Car loan application

No

Yes

Personal loan application

No

Yes

Business line of credit application

No

Yes

Home equity loan

No

Yes

Home equity line of credit

No

Yes

Reviews for prequalification

Yes

No

Reviews for prescreening offers

Yes

No

Requests for annual credit reports

Yes

No

Why hard credit inquiries can raise red flags 

If a bunch of hard inquiries pop up on your credit report in a short amount of time, it can send a smoke signal to lenders, alerting them that you might be in financial hot water. For instance, if you are applying for credit cards left and right, it might be a sign that you’re stretched thin financially and have an urgent need for cash. 

So, what are the consequences of having too many hard pulls on your credit? For one, you might have a challenging time getting approved for credit. Lenders and creditors might be reluctant to offer you a loan or credit card. Or, if you do get the green light, you might be looking at higher interest rates and less favorable — and flexible — terms. 

And as mentioned, hard inquiries can bring down your credit. While these inquiries can stay on your credit report for up to two years, they usually only impact your score for the first year. 

How to avoid hard inquiries from hurting your credit score 

While hard credit inquiries do minimal damage and usually bring down your score only by a few points, it’s best to avoid them hurting your score too much in the first place. Here are a few tactics on how to go about doing this: 

  • Only apply for credit when you need it. While you might be tempted to apply for credit just because you’re curious or can, only apply for credit when absolutely necessary. Being judicious in applying for financing can protect your score from taking a dip without a good reason. 
  • Get prequalified before applying. Get prequalified instead of applying for a loan or credit card from the get-go. You’ll get an estimate on your rates and terms on a loan and see your odds of getting approved. Not only does this result in a soft credit inquiry, which doesn’t hurt your score, but it prevents you from applying for credit, which can harm your score.
  • Apply for multiple credit cards and loans within a short amount of time. If you rate shop within a short amount of time, creditors will likely recognize that you’re rate shopping and count multiple inquiries as one. This indicates that you’re not hurting financially and in desperate need of cash. Instead, lenders know you are simply hunting around for the best rates. The window of time depends on the scoring model. For instance, VantageScore 4.0’s rate-shopping window is 14 days, while the rate-shopping window for newer versions of the FICO® Score is 45 days. 

Knowing why credit checks hurt your credit score, which types of credit checks impact your score, and how to avoid unnecessarily bringing down your score can help you maintain a strong credit score and boost your overall financial well-being. 

author
Jackie Lam
Cardratings Contributor

Jackie Lam is a personal finance writer and is based in Los Angeles. She is an accredited AFC® financial counselor. Jackie is passionate about helping artists, freelancers, and gig economy workers with their finances. She has in-depth experience writing about budgeting, investing, frugality, money, and...Read more

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