How many points does a hard inquiry affect credit score?

The Slight Sting: How Hard Inquiries Affect Your Credit Score

Your credit score is a vital piece of your financial puzzle, influencing everything from loan interest rates to apartment approvals. Understanding what impacts it, and by how much, is crucial for maintaining good credit health. One element that often causes confusion is the hard inquiry, also known as a hard pull. But how significantly does a hard inquiry really affect your credit score? Let’s break it down.

What is a Hard Inquiry?

Before diving into the impact, it’s important to understand what a hard inquiry actually is. A hard inquiry occurs when a lender checks your credit report as part of an application for credit. This happens when you apply for a credit card, a loan (like a mortgage, auto loan, or personal loan), or even when you rent an apartment. The lender wants to assess your creditworthiness and risk before extending you credit.

Hard inquiries are different from “soft inquiries” or “soft pulls,” which don’t affect your credit score. Soft inquiries happen when you check your own credit report, when a company pre-approves you for an offer, or when a company runs a background check.

The Point Deduction: How Much Does It Hurt?

The good news is that the impact of a hard inquiry is typically less severe than many people fear. While a hard inquiry can lower your credit score, the impact is usually minimal.

Generally, a hard inquiry might reduce your credit score by up to 10 points. However, according to FICO, a leading credit scoring company, the impact is often less than five points. This reduction is usually temporary and diminishes over time.

Factors Affecting the Impact

The precise impact of a hard inquiry on your credit score depends on several factors:

• Your overall credit profile: If you have a long and established credit history with responsible payment habits, a single hard inquiry will likely have a smaller impact than if you have a shorter credit history or a history of missed payments.
• The number of recent hard inquiries: Multiple hard inquiries within a short period can raise red flags for lenders, suggesting you’re desperately seeking credit. This can have a more significant negative impact.
• The type of credit being applied for: Applying for a mortgage, which is a significant financial commitment, might have a slightly different (though still generally minor) impact than applying for a department store credit card.
• Your existing credit score: Someone with an already excellent credit score might see a barely noticeable dip, while someone with a lower score might see a slightly larger percentage-based reduction.

How Long Does a Hard Inquiry Affect My Score?

The good news is that hard inquiries don’t haunt your credit report forever. Most credit scoring models only consider hard inquiries for 12 months. After that, the impact starts to fade. Hard inquiries usually disappear from your credit report entirely after two years.

When to Be Concerned About Hard Inquiries

While a single hard inquiry usually isn’t cause for alarm, here are situations where you should be more mindful:

• Rate Shopping for Loans: When shopping for a mortgage or auto loan, many inquiries within a short window (typically 14-45 days, depending on the credit scoring model) are often treated as a single inquiry. This allows you to shop around for the best rates without significantly impacting your credit score.
• Applying for Numerous Credit Cards at Once: Avoid applying for several credit cards simultaneously. Each application will result in a hard inquiry, potentially lowering your score more significantly.
• Unnecessary Applications: Think carefully before applying for credit, especially for offers that seem too good to be true. Every application leaves a hard inquiry on your record, so be selective.
• Errors on Your Credit Report: Regularly review your credit reports to ensure the inquiries are legitimate and accurate. If you find an unauthorized inquiry, dispute it with the credit bureaus immediately.

The Takeaway

Hard inquiries are a normal part of applying for credit, and their impact on your credit score is typically minimal and temporary. While it’s smart to be mindful of hard inquiries, don’t let the fear of a slight dip prevent you from shopping around for the best loan rates or applying for credit when you need it. Focus on maintaining a healthy credit profile with on-time payments, low credit utilization, and a diverse mix of credit accounts, and you’ll easily weather the small sting of a hard inquiry.