Understanding Credit Inquiries: A Comprehensive Guide

When it comes to managing your credit, understanding the nuances of credit inquiries is crucial. At O1ne Mortgage, we believe in empowering our clients with the knowledge they need to make informed financial decisions. In this article, we will delve into the differences between soft and hard inquiries, the impact of multiple loan inquiries, and how to navigate the credit landscape effectively. For personalized mortgage services, feel free to call us at 213-732-3074.

What Is a Soft Inquiry?

A soft inquiry, also known as a soft pull, occurs when someone checks your credit for non-lending reasons or without your explicit permission. These inquiries do not affect your credit scores and can happen in various scenarios, such as:

• Self-Check: When you check your own credit report or score.
• Preapproval: When you get preapproved for a credit card or loan.
• Prescreened Offers: When a creditor includes you in a list to send prescreened firm offers of credit.
• Current Lender Checks: When a current lender or card issuer checks your credit.
• Employment Checks: When an employer checks your credit.
• Collection Agency Checks: When a collection agency checks your credit to find your contact information.
• Insurance Checks: When an insurance company uses a credit-based insurance score.
• Court Orders: When there’s a court order that results in a credit check.

Some applications, such as those for utilities, phone services, or rentals, usually result in a soft credit inquiry. It’s always a good idea to double-check with the company before agreeing to the credit check to be certain.

What Is a Hard Inquiry?

A hard inquiry, or hard pull, occurs when someone checks your credit report in response to an application for credit. These inquiries can happen when:

• Loan Applications: You apply for a loan.
• Line of Credit Applications: You apply for a line of credit.
• Credit Card Applications: You apply for a credit card.
• Credit Limit Increase Requests: You ask for a credit limit increase (though some issuers use a soft inquiry).

Hard inquiries can impact your credit scores. However, a single new hard inquiry usually only drops your FICO® Score by less than five points (or five to 10 points for VantageScore® credit scores), and the effect may only last a few months.

Why You Should Avoid Too Many Loan Inquiries

Credit scoring companies have found that individuals who apply for and open multiple new accounts might be more likely to miss a payment in the future. Although a single hard inquiry might only slightly hurt your credit scores, multiple hard inquiries could increase the negative impact. An application can lead to a hard inquiry even if the creditor denies your application.

However, credit scoring companies also recognize that people commonly shop for loans to find the best offer. For example, you might get multiple auto loan or mortgage offers to compare rates and terms, but you’ll only end up taking out one loan. The companies have created rules that allow you to shop for credit without worrying about having too many loan inquiries.

How Long Do Hard Inquiries Stay on Your Credit Report?

Hard inquiries can stay on your credit reports with the three national credit bureaus (Experian, TransUnion, and Equifax) for up to two years, but they likely won’t affect your credit score the entire time.

• FICO® Scores: Only consider inquiries from the previous 12 months.
• VantageScore Credit Scores: May consider hard inquiries from the previous 24 months.

With both FICO and VantageScore credit scores, the impact of a new hard inquiry tends to only last a couple of months. Additionally, hard inquiries only get added to the credit report that a creditor requests. For example, if you apply for a personal loan, the creditor might check your Experian credit report and a credit score based on the report. A new hard inquiry will be added to your Experian credit report but won’t be added to your TransUnion or Equifax credit reports—or affect your scores based on those reports.

Some applications, such as mortgage applications, tend to lead to creditors checking all three of your reports. And some creditors might check more than one of your credit reports when you apply for other types of loans or a credit card.

Do Multiple Credit Inquiries Count as One?

Multiple hard inquiries from loan applications sometimes count as one inquiry for scoring purposes. But it depends on the type of loan, the type of credit score, and when the creditors request your credit reports.

• VantageScore Credit Scores: Count multiple hard inquiries from a 14-day period as one inquiry.
• FICO’s Credit Scores: Work differently. FICO only deduplicates hard inquiries from auto, home, and student loans.

Don’t Be Afraid to Gather Loan Offers

You might not want to repeatedly apply for new loans or credit cards if you likely won’t get approved or you’re preparing for a major purchase, like a new car or home. However, you don’t need to let fear of hard inquiries keep you from rate shopping when you need a loan.

You can use your knowledge of scoring rules to make strategic decisions, like submitting applications during a 14-day period. Additionally, you can try to get preapproved or prequalified to see your estimated offers with a soft inquiry, which won’t affect your scores.

Check your Experian credit report for free to see which hard inquiries are on your report. Experian can also match you with loan offers based on your unique credit profile.

At O1ne Mortgage, we are committed to helping you navigate the complexities of credit inquiries and securing the best mortgage options for your needs. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to assist you every step of the way.