March 13th, 2012 12:06 PM by Scott Bray
We sometimes get questions from clients asking if credit inquiries hurt their credit score when a company requests a copy of their credit report. The simple answer is - Sometimes... There are two types of inquiries the affect your credit report & score. Let's look at them below:
Soft Inquiries: These do not affect your credit score and thus you don’t have to worry about them. They are reported on your credit report which confuses many people. A soft inquiry, or “soft pull” as we refer to them, are harmless in nature. There are many examples. Here are a few:
1) If you have a credit card, they have pulled your credit. This is done by your credit card company to see if you have missed paying any of your other financial obligations. If you have been late, this allows them to increase the interest rate on your credit card per your agreement! Very few people notice this when they open a credit line because they don’t read the agreement.
2) Pulling your free annual credit reports at www.annualcreditreport.com. Again, these don’t affect your score and is something everyone should do once a year. The credit reports are free but you have to pay a fee if you want the score.
3) Lending institutions regularly pull your credit for “pre-approved” offers. You know the main culprits here—usually credit card companies that want your business.
4) A few other examples are when you apply for employment or by landlords for renting or leasing an apartment or a house.
The second type of Inquiry are:
Hard Inquiries: Ok, these are the only ones you have to worry about. When I talk to clients I make it simple by telling them if you apply or initiate an application for a vehicle, credit card, line of credit or a mortgage etc… then it is factored into your credit score.
From my experience many people get into trouble with inquiries when they are making purchases at major department stores or other large businesses. At checkout the clerk tells them they can get “15% off this purchase” if they apply for a credit card or line of credit with that business. Do not do this! Department store cards are not rated the same as major credit cards and the interest rates are usually much higher!
Finally, keep in mind hard inquires stay on your report for two years but are most often only factored into your score if they are within the last six months.
Above are basic explanation about Credit Inquiries.