Have you applied to rent an apartment lately? Or maybe tried for an auto loan or mortgage? 

In each of these cases, the landlord or lender ordered your credit scores and reports, from one or more credit bureaus, to find out where your credit stands. This is known as a credit inquiry, or a “hard pull.”

Credit inquiries/hard pulls impact your credit score, and you shouldn’t take them lightly. However, they’re not quite as important as you might think. Let’s take a look at why this is the case.   

Credit inquiries account for 10% of your FICO score. That is less than 3 other factors (payment  history, which is 35% of your FICO score) debt utilization (30% of your FICO score), and the average age of your credit accounts (15% of your FICO score), and as much as another credit factor (mix of credit accounts, which makes up 10% of your FICO score). 

This means that credit inquiries have a smaller impact on your credit scores, than whether you pay accounts on time, how much debt you carry, and how old your credit accounts are. In short, there are many factors which are more important than credit inquiries. 

Of course, this isn’t to say that credit inquiries don’t matter. On the contrary, too many credit inquiries can harm your credit score quite a bit. If you apply for credit more than 4 separate times in one year (outside of a mortgage or auto loan, which we’ll get to in a minute), you’ll have quite a substantial negative impact on your credit scores.

How Long Do Credit Inquiries Remain On Your Credit Reports?

By law, credit inquiries cannot remain on your credit reports for longer than two years. This is in stark contrast to items like collections, late payments or auto repossessions (which stay on your credit reports for 7 to 7.5 years), or some types of bankruptcies (which can remain on your reports for 10 years). Thus, credit inquiries negatively impact your credit scores for a fairly short period of time. 

Even within this two year period, the impact of credit inquiries drops considerably as time passes. Within the first 6 months after an inquiry, you’ll observe a noticeable negative impact on your credit score. 

After applying for new credit, your score might drop as much as 30 points (in more extreme cases). Most of the time, the impact is much smaller, say 5 to 10 points. However, the newer you are to credit (and thus the less credit history you have), the more likely you are to see a larger drop in your FICO score.    

However, after 6 months have passed, most of that impact should be gone. After 12 months, your score should basically be back to where it was, before the inquiry occured.

Compare this to a collection account. Collections accounts continue to have a very sizable negative impact on your credit score for as much as 5 years after they were opened, and will continue to harm your FICO score for the entire 7 to 7.5 years the account appears on there. The same is true of foreclosures, repossessions and most other negative credit items. Clearly, credit inquiries are not quite as harmful to your FICO score.

What Happens If You Need To Apply For Multiple Mortgage Or Auto Loans?

One of the most common issues with credit inquiries arises when you’re applying for a mortgage or auto loan. In these instances, you probably want to apply with multiple lenders, and make sure you’re being offered the very best deal possible. However, you also want to ensure that you’re protecting your credit score. Fortunately, it is possible to do both.

Under older versions of the FICO scoring model, as used for mortgage and auto loans, all credit inquiries within a 14 day period will count as a single credit inquiry. So, let’s say that you applied for a mortgage on March 1, and another on March 4, and yet another on March 15. 

Since all of those inquiries fall within a 14 day period, they’ll all count as a single credit inquiry, and your FICO score won’t be adversely impacted. However, if you apply for credit again on March 21, that will count as a separate inquiry, and will impact your credit score further.

The same is true of auto loans. If you visit a car dealership, and your credit is pulled 4 times during your visit (for applications with 4 different auto lenders), these 4 credit applications will count as just a single inquiry.

For newer versions of FICO, all mortgage and auto loan inquiries within a 30 day period will count as a single inquiry. However, it’s important to keep in mind that since older versions of FICO are still widely used, you should assume the 14 day rule may apply.         

Does Checking Your Credit Result In A Credit Inquiry?

There are two main types of credit inquiries: Hard inquiries and soft inquiries. Hard inquiries occur when you apply for credit. This could mean that you applied for a credit card, auto loan, apartment rental, or some other sort of financial transaction. These sorts of credit inquiries will typically impact your credit score.

On the other hand, soft inquiries are when your credit reports or scores are somehow ordered or viewed, but your credit score is not impacted. This could involve a promotional inquiry (think those offers you recieve in the mail), where a credit card company or other lender seeks limited access to your credit reports, to find out whether you might qualify for credit cards, loans or other products.

Checking your credit reports falls into a similar category – it does not impact your credit score. You can check your credit reports as many times as you wish, without impacting your credit score in any way. While there are many approaches you might take, we suggest checking your credit score once per month, through Credit Karma & freecreditscore.com.

How Many Times Per Year Should You Apply For Credit?

As you now know, you should limit the number of credit inquiries you incur, in order to avoid too much impact to your credit score. So, what’s the right number?

If you’re new to credit, you’ll probably need to apply for credit at least a few times per year, in order to build sufficient credit history. For example, you might need to open a secured credit card, or a credit builder account, each of which will probably require a credit inquiry. That means at least a few credit inquiries in that first year.

What about later on? In any given year, you should avoid applying for credit more than 4 times. When we say 4 times, we’re not counting multiple auto loan or mortgage inquiries, which occur during a 14 day period. Remember, each of those, if done within the 14 day period, counts as a single inquiry. 

When applying for credit, it is important to be strategic. You should only apply for credit cards or loans where you have a decent chance of being approved. 

How do you know whether you’re likely to be approved? Before you apply, you should visit websites like Credit Karma & Nerdwallet, to find out the odds of being approved for a particular credit card or loan. While their recommendations are not 100% accurate, they do offer a fairly solid idea of your chances of being approved.

As you might know, some folks like to chase credit card points. They strategically open and close credit cards, in order to earn the maximum rewards possible (i.e. cashback, airline miles, hotel points and so on). If you’re one of these people, you probably have more than 4 inquiries per year.

In a sense, this isn’t a problem. As long as you’re keeping track of all of your cards, and spending in a smart manner, you shouldn’t have any issues. However, since most of us don’t do this, it is important to be as disciplined as possible. If you don’t think you can handle opening and closing multiple cards, you should avoid this strategy.

How Do You Remove Inquiries From Credit Reports?

What if you believe a credit inquiry was incorrect? Perhaps you did not authorize the inquiry, or you did not know that it would impact your credit score (i.e. you thought it was a soft inquiry). How should you go about addressing this?

The Fair Credit Reporting Act (FCRA) is a federal law which controls what appears on credit reports, and when credit inquiries are permitted. Specifically, Section 604 of the FCRA provides a series of purposes under which a potential creditor is allowed to pull/order your credit reports. 

Also, in many cases, a creditor is required to provide proof that you authorized a credit inquiry. This could involve sending over a credit application with your signature (electronic or digital), or other proof that you authorized the inquiry. Quite often, they’re unable to provide such proof, or comply with other legal requirements. This can lead to the removal of the credit inquiry.

However, even if you’re not able to remove a credit inquiry, you shouldn’t worry too much. As mentioned earlier, credit inquiries only really impact your FICO score for about 6 months, after which your credit score should rebound from any credit inquiry.

Credit inquiries: The Final Word

As we’ve mentioned, credit inquiries count for just 10% of your FICO score. Therefore, they are not something you should worry too much about. With that said, knowing how credit inquiries work, and understanding how you can manage them smartly, allows you to build and manage your credit effectively.