Understanding Hard Inquiries on Your Credit Reports

Reading time: 3 minutes

Highlights:

• Obtaining your own credit reports will not affect your credit scores

• A hard inquiry occurs when a lender or company makes a request to review your credit reports as part of the loan application process

• Multiple inquiries for the same type of loan, such as a mortgage, made within a certain period of time generally count as one inquiry

Some consumers are reluctant to check their credit reports because they are concerned that doing so may impact their credit scores. While pulling your own credit report does result in a "soft" inquiry on your credit reports, it will not affect your credit scores. In fact, knowing what information is in your credit reports and checking them regularly may help you get in the habit of monitoring your financial accounts.

One way to help establish smart credit behaviour is to understand how inquiries work and what counts as a “hard” inquiry on your credit reports.

What is a hard inquiry?

When a lender or company makes a request to review your credit reports as part of the loan application process, that request is recorded on your credit reports as a hard inquiry, and it usually will impact your credit scores. This is different from a “soft” inquiry, which can result when you check your own credit reports or when a promotional credit card offer is generated. Soft inquiries do not impact your credit scores.

Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit reports for up to 36 months. Depending on your unique credit history, they could indicate different things to different lenders.

Recent hard inquiries on your credit reports tell a lender that you were recently shopping for new credit. This may be meaningful to a potential lender when assessing your creditworthiness.

Exceptions to the impact on your credit scores

If you're shopping for some types of loans, such as a mortgage loan, multiple inquires for the same purpose within a certain period of time are generally counted as one inquiry. The timeframes may vary, but range from 14 days to 45 days, depending on the credit scoring model being used. All inquiries will show on your credit reports, but generally only one within the specified period of time will impact your credit scores. This exception does not apply to credit cards.

Plan before shopping for a loan

Before shopping for a loan, it's always smart to proactively plan your finances.

First, learn whether the type of credit you're applying for can have its hard inquiries treated as a single inquiry. If so, determine the applicable timeframe. Then you can plan your shopping period accordingly.

Second, you may also want to check your credit reports before getting quotes to understand what information is reported. Find out how to request a free credit report from Equifax.

If you're worried about the effect that multiple hard inquiries may have on your credit reports, it may be tempting to accept an offer early rather than allow multiple hard inquiries on your credit. However, consider your individual situation carefully before cutting your shopping period short. In many cases, the impact hard inquiries have on your credit scores from shopping around will likely be minimal compared to the long-term benefits of finding a loan with a lower interest rate. The more informed you are about what happens when you apply for a loan, the better you can prepare for the process before you start shopping.