When a consumer applies for a new type of credit - a credit card, auto loan, mortgage, etc. - the lender will often check their credit score and credit history. When the lender requests a copy of the applicant's credit report from one or several of the different credit bureaus, it creates a credit check or inquiry on the report. These inquiries drop off after a time, but other lenders may become suspicious if they see a consumer has had many inquiries over a short period.
There are two types of credit inquiries that lenders may see when they check a credit report:
- A soft inquiry is a credit inquiry carried out for reasons other than a loan. Inquiries by potential employers, businesses dealing with something other than credit, or the consumer themselves are considered soft inquiries. They do not affect the consumer's credit score.
- Hard inquiries are those made by lenders. These may stay on a credit report for as long as two years and may impact a consumer's credit for as long as one year after they are made. FICO has stated that each hard inquiry will drop most consumers' score by a maximum of about five points. It may have a more negative impact on those with poor credit.
Consumers applying for several types of loans within a short period should be aware that they may face questions about large numbers of hard inquiries on their report.
If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.