One of the first things lenders look at when you apply for a loan is your credit report. This report gives them a bird’s eye view of your financial responsibility. If you are not financially responsible, you’ll generally have a lower credit score than a financially responsible person. Many things affect your credit score, though, including inquiries. So just how long do they hang around?
Hard Inquiries on Your Credit Report
The only type of inquiry lenders will see on your credit report are hard inquiries. These occur when you ask a bank for a loan. It could be a mortgage, car loan, student loan, or credit card. Any bank that pulls your credit because they want to extend you credit creates a hard inquiry.
These inquiries can stick around for 24 months. The good news, though, is that it won’t affect your credit score for that long. They typically affect your credit score for the first 12 months. The remaining time, they are there for future lenders to see, but they don’t have an effect on your credit score.
How Much Does a Hard Inquiry Affect Your Score?
A part of your credit score is the credit inquiries made recently. They don’t do too much damage on their own, though. Usually, they knock off about five points. In the grand scheme of things, this isn’t a big deal. But if you go out and apply for different types of credit in a short amount of time, you could knock a significant number of points off your score, ruining your chances for future loan approval.
There is an exception to the rule, though. Let’s say you are shopping around for a mortgage. You want to find the lender that offers the best rate and terms. You apply with four or five different lenders within a 2-week span. Normally, that would cost you 20 to 25 points on your credit score. But, because all of the inquiries are within the same industry, the credit bureau will count them as one inquiry. In other words, you get hit 5 points rather than 20 or 25 points.
This doesn’t work forever, though. You need to do your shopping within a short period of time. We recommend a 2-week window just to be sure, although you may get a little longer today.
Who is Hurt by Credit Inquiries the Most?
Credit inquiries hurt the people with short credit histories the most. These are the people that count on every point in order to ensure a good score. If you are trying to build a credit history, it’s best if you don’t apply for new credit during that time. Just let the credit you have build up – just time will help your score increase as the older your accounts, the better your credit score. If you keep offsetting that with credit inquiries, you might have a hard time getting ahead.
Lenders look at inquiries as bad. Studies show that more than six inquiries in a short amount of time make you more likely to file bankruptcy. If nothing else, it makes a lender think you are desperate for money and are trying to find a lender to give you some. That’s not what new lenders want to see, so make sure you are careful with your applications.