What Is a Hard Credit Inquiry?

Credit is a big part of our modern financial lives, so it’s important to know the basics of responsible credit usage, like how to maintain your credit score and how to responsibly manage loans. 

Part of that is simply understanding the terminology. You may have heard of a credit pull or credit inquiry. You may have even heard the difference between soft and hard credit pulls being discussed. What do these terms really mean? What is a hard credit inquiry? 

We’ll go over the information you need to know.

What is a credit inquiry?

Whenever we apply for new credit, such as a loan or a credit card, the lender will pull our credit. This involves requesting credit records from one of the three main credit bureaus. 

These credit pulls by lenders are referred to as credit inquiries. And there are two types: soft and hard. 

What is a hard credit inquiry, or hard pull?

A hard credit inquiry is when a potential lender requests your credit report from one of the credit bureaus. This will occur any time you apply for a loan, line of credit or credit card. It may also take place when you apply for an apartment lease. 

A hard credit inquiry gives lenders access to your entire credit report. They can see your payment history, current loans and balances, any negative marks and more. 

This information is used by the lender to determine whether they would be willing to extend credit to you. 

A hard pull is done by a lender or a third party. On the other hand, soft pulls are done by you — when you check your own credit, for instance — or by a lender who is pre-qualifying you for a potential loan. 

How do hard inquiries affect credit?

Hard inquiries will show up on your credit report. They can have a small negative impact on your credit score, but this effect is temporary. 

FICO credit scores are calculated using a variety of credit rating factors:

• 35% payment history: Making on-time payments is the most important factor in your FICO score.

• 30% amounts owed: The total amount owed plus the percentage of each credit card limit you’re utilizing — also known as credit utilization. Many credit experts recommend keeping your credit utilization below 30%.

• 15% length of credit history: The average age of all your accounts. Opening new accounts shortens the average age, as does closing long-standing cards.

• 10% credit mix in use: The variety of credit you are using— e.g., mortgages, auto loans, student loans, personal loans and credit cards.

• 10% new credit: This takes into account new credit card applications and loans. A new application every once in a while is expected, but many all at once can look suspicious to lenders.

As you can see, only 10% of your credit score is made up of factors relating to new credit, and only a portion of this refers to new credit inquiries. 

Having a new hard credit pull on your credit report won’t have a significant impact on your credit, although it might drop your score by a few points. This effect should revert within a few months. 

If you have several new credit inquiries around the same time, that can have a larger negative impact. A flurry of applications all at once shows lenders that you may be unable to repay those loans — making them less likely to want to extend you additional credit. 

How long do hard inquiries stay on your credit report?

Hard inquiries will appear on your credit report for two years. However, the effect on your credit score is usually much shorter, often only a few months. A new credit inquiry could affect your score for up to one year, but it’s usually a shorter period than that. 

How to minimize the effects of hard inquiries on your credit

Now that you understand more about hard credit inquiries, how can you use this information to protect your credit score?

First and foremost, remember that hard inquiries are necessary at times. If you need to apply for a new loan or credit card, a hard inquiry is inevitable. There’s no need to avoid a hard credit pull out of worry for your credit score, the effect will likely be minimal. 

With that said, you can take steps to avoid unnecessary credit inquiries. This could involve:

• Only applying for credit when necessary: An important component of responsible credit use is only utilizing credit when it’s necessary. Avoid unnecessary applications, like those store credit cards that offer a small discount for signing up. 

• Avoid making several applications at once: One hard inquiry won’t have much effect on your FICO score but several around the same time can have a much larger impact. 

• Ask if you’re unsure: If you know your credit will be pulled soon, you can ask the third party if it will be a hard or a soft pull. 

• Monitor your credit: It’s helpful to keep an eye on your credit report. You can monitor credit using a complimentary tool like Credit Sesame or Credit Karma. 

Finally, it’s wise to learn about the responsible use of credit. Part of that is learning how to prioritize paying off high-interest debt, which can be very costly over time. 

If you have credit card debt, Tally† may be for you. Tally is a finance app that helps qualifying Americans consolidate credit card balances to save money on interest. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.