What is the role of credit inquiries in determining your credit score?
Credit inquiries play a key role in determining your credit score. There are reasons for this. One, they give a peek into your latest credit activity and second, it shows the frequency with which you are seeking new credit.
Essentially, there are two kinds of credit inquiries: hard and soft inquiries.
Hard inquiries: These happen when a lender has pulled your credit report after you made an application for credit, such as at the time of applying for a loan or a credit card.
Hard inquiries may have a temporary negative impact on your credit score because they indicate that you are seeking new credit.
But their impact is generally small, and it disappears over a period of time. Hard inquiries may stay on your credit report for as long as two years but affect your credit score only for the first year.
Soft inquiries: These take place when you or a third party happens to check your credit report for a number of reasons other than applying for credit. For instance, soft inquiries can result from checking your own credit report, pre-approved credit offers, or background checks by potential employers or landlords.
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It is vital to note that soft inquiries do not affect your score since they don’t show a potential increase in your debt burden. They also stay on your credit report but are only visible to you and not to lenders who are reviewing your credit history for taking a loan decisions.
Credit scoring models factor into both the number and frequency of hard inquiries at the time of computing your credit score.
While a few hard inquiries within a short period of time may have a small impact on your score, a large number of
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