Unlike a soft inquiry which is carried out when you check your credit score, a hard inquiry happens when you apply for a loan. This leads to an adverse impact on your credit score, albeit temporarily.
It is for this reason that it borrowers are recommended to apply for multiple loans within a short span of time.
What is hard inquiry?
A hard inquiry takes place when your bank checks your credit score when you apply for a loan. If you ever applied for a loan, then you may have received several phone calls soon from banks offering your loans. This happens because the lender puts your profile under credit check before taking a decision.
Impact of hard inquiry
It is believed that hard inquiry leads to the loss of credit score, albeit temporarily. And it shows on your credit report for a long time. Therefore, when there are too many inquiries – it indicates that you are too desperate for loan.
Score Drop: A hard inquiry can temporarily lower your credit score by 5-10 points (sometimes it is even less if your credit history is good).
Duration on Report: The hard inquiry stays on your credit report for a long time but it affects your credit score only for 12 months.
Number of inquiries: If you apply for too a number of credit products in a short span of time, it shows that you are desperate for credit, which can further hurt your score.
How to minimise the impact of hard inquiry.
You can take following steps to minimise the impact of hard inquiry:
1. You should apply for credit cards or loans only when it is necessary.
2. It is recommended to space out credit applications (ideally three to six months apart).
3. You should use pre-approval tools (known as soft inquiry) before applying.
4. You shouild not apply to too many credit cards only to earn sign-up bonuses. Instead, focus on quality applications only.
