My credit report: What is a Credit Inquiry and how does it relate to my credit report?

What are inquiries on my credit report

A credit inquiry occurs when a potential credit grantor, potential employer, rental housing agency, or other entity with a “permissible purpose” (as defined by the Fair Credit Reporting Act) requests access to your credit report. These inquiries are captured by credit reporting agencies and retained in your credit report for approximately two years from the date of the initial inquiry.

Credit inquiries which may reflect negatively on your credit report are those that are triggered by you in an effort to obtain additional credit. For example, if you apply for a credit card, mortgage or car loan, an inquiry will be made into your credit history. Potential credit grantors may regard such inquiries on your behalf as an indication of financial instability. However, inquiries by a potential employer, you, or a bank interested in offering you a pre-approved credit card will not reflect negatively on your report. All inquiries are listed regardless of their nature. As a general rule, it’s a good idea to limit your number of credit-seeking inquiries. But remember, your debt to income ratio will likely be considered when a potential grantor is determining your level of risk. This means that if you have a low amount of debt in relation to your income, the number of inquiries against your account may not affect your credit rating negatively. In short, be sure to monitor the number of credit inquiries, particularly if you are hoping to assume additional loans. If you have additional questions about credit inquiries, seek the advice of a trusted financial advisor or credit counselor.

What’s the Difference Between Hard and Soft Credit Report Inquiries?

You’ve probably heard that the number of inquiries on your credit report may affect your credit score. The greater number of inquiries you have may negatively impact your score. There are two different types of inquiries: hard and soft.

Both types of inquiries will allow a lender to view your credit report, however, only hard inquiries can negatively affect your score. If you’ve been searching for a credit card, student loan, or even a personal loan, you may have seen websites state that applying for certain types of credit won’t affect your score. When lenders state this, they are pulling a soft inquiry for pre-qualification purposes.

If you’re applying for any type of credit, you must give lenders an authorization to check your credit report. Hard inquiries are made when a financial institution is making a lending decision to the consumer. This can include mortgages, student loans, credit card, personal loans, or even auto loans. The key to understanding the main difference between a hard and soft inquiry is that hard inquiries could lower your credit score. Hard inquiries will be visible to all lenders. For example, if you apply for a credit card and have an inquiry marked on your credit report, and then the following month you apply for an auto loan, the auto lender will be able to see that you applied for a credit card.

The impact of hard inquiries is minimal compared to other credit factors that make up your score. They only represent 10% of your score whereas your payment history makes up 35% of your score. However, that doesn’t necessarily mean that it’s okay to have multiple inquiries whenever you’re searching for a credit card or a loan. Having a lot of inquiries during a short amount of time may signal to a potential lender that you’re trying to get a lot of credit in a short amount of time. Inquiries will last on your credit report for two years.

The other type of inquiry is called a soft inquiry. This is also known as a “soft pull”. These types of inquiries do not affect your credit score at all. Unlike a hard inquiry, when a lender views your credit report they will not see the soft inquiries on your report. So when do soft inquiries occur?

Soft inquiries can take place when:

  • A lender is screening customers for potential credit offers (think credit cards or loans)
  • When you check your credit score through free credit monitoring services
  • When you fill out a loan request from lenders
  • Applying for a new job and conducting a background check
  • Opening up a new account with a utility company

Just to reiterate, if a lender is performing a soft inquiry, checking to see if you qualify for a credit card, mortgage, or a personal loan won’t affect your credit score at all. However, if you decide to proceed with an application, there are times where the lenders may actually require a hard pull.

Grace Period for Hard Inquiries

If you’re shopping for a mortgage or an auto loan, it’s important to make sure you get the best deal. This will require you to apply with different lenders during a short period of time. In most cases, it might be a hard inquiry. When consumers are shopping around for a mortgage or auto loan, each inquiry will result in a hard pull. However, a consumer who is “rate shopping” won’t be penalized for repeated inquiries for certain types of loan. Equifax states that “Most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time- usually 30 days. In these cases, multiple inquiries will be treated as a single inquiry, and this will have little or no impact on your credit score.

Knowing the difference between each type of inquiry can help you make a better decision when a lender asks to pull your credit report. If it’s a hard inquiry, you’ll want to make sure that you’re confident in obtaining credit from the lender to begin with. A soft inquiry will provide you with the peace of mind knowing your credit score won’t be affected.

What#39;s the difference between a hard inquiry and a soft inquiry?

Before applying for or checking your credit, it's important to find out whether it will be recorded as a hard inquiry or soft inquiry, as a hard inquiry could lower your credit score.

Here are some other key differences between hard inquiries and soft inquiries, along with some examples of when they may occur.

A hard inquiry is typically recorded on your credit report whenever a lender reviews your credit when you apply for a credit card, loan or mortgage.

However, if you apply to rent an apartment or apply for a job and there’s a subsequent credit check, these may be counted as hard inquiries, depending on who’s checking your credit.

Before giving a company permission to review your credit, ask how the inquiry will be recorded.

Hard inquiries can negatively impact your credit score and they can remain on your report for three to six years.

Applying for a lot of credit in a short time span can indicate to lenders that you're in financial trouble or desperately seeking credit. Try to limit the number of hard inquiries by only applying for credit when you're serious about it.

A soft inquiry typically occurs when you or a third party reviews your credit for non-lending purposes. This could occur when you review your own credit, a company offers you a new product or service, or a company where you have an existing account needs to verify your credit. According to TransUnion Canada, the following situations may also trigger soft credit inquiries:

  • Applying to rent a home
  • Applying for a job
  • Applying for insurance

Your credit card provider might verify your credit when deciding to offer you a credit limit increase or promotion.

It’s key to note that soft inquiries DON’T impact your credit score. This means that requesting your credit score or report from Credit Karma counts as a soft inquiry and doesn’t affect your credit score.

According to Arthur Lam, consumer and verification verticals leader for Equifax Canada says, A soft inquiry is visible only to the individual and the entity that made the request.

How long does each inquiry stay on my credit report?

Hard inquiries can stay on your credit report for three to six years, depending on the credit bureau recording the hard inquiry.

On the other hand, soft inquiries only appear to you and the entity that made the request.

What effect can a hard inquiry and soft inquiry have on my credit score?

Hard inquiries can lead to your credit score dropping by several points, and there could be an even bigger effect on your credit score if you have few credit accounts or your credit history is short (for example, if you're a student or a new immigrant to Canada).

That being said, one hard inquiry isn't likely to make a big impact on your credit score.

Is there anything I can do if I don't recognize a hard inquiry or didn't authorize it?

Before giving permission to a third party to do a credit check, it's a good idea to ask whether it'll be recorded as a soft inquiry or hard inquiry. When signing a contract, read it thoroughly; sometimes you can provide consent to check your credit without even realizing it.

It's also a good idea to get a free copy of your credit report at least once a year and review it to ensure it's accurate. You can request a copy of your credit report from Equifax and TransUnion by mail or fax by completing a form and providing two pieces of identification.

If there’s something on your [credit] file you don’t recognize or believe you didn't authorize, your first step should be contacting the inquirer. This is why the inquiry posted includes the name of the entity and a contact number, Lam says.

It may be a mistake, or you may have signed a contract where the permission for a hard inquiry was hidden in legal language.

If you aren't having any luck with the third party, contact the credit bureau that recorded the hard inquiry to dispute it.

You can correct errors and dispute inaccuracies on your credit report with Equifax by completing and submitting a Consumer Credit Report Update Form.

Likewise, you can dispute hard inquiries with TransUnion by downloading and completing an Investigation Request Form.

You can also call both of their toll-free phone numbers to discuss in further detail.