What is a hard inquiry?

A hard inquiry is any credit check that results in a penalty. It represents an attempt to obtain debt by applying for a credit account. It is distinguished in this way from soft inquiries, which include all other credit checks absent of an attempt to open new credit.

Hard inquiries are recorded so that lenders can track your attempts to open new credit accounts. This is an important function of FICO credit scoring models, since multiple hard inquiries can lower credit scores.

How Much do Inquiries Lower Credit Scores?

The actual impact of a hard inquiry on your credit score is often debated. Fair Isaac Corp. (developer of FICO scoring models) provides some insight into this effect through its spokesperson, Craig Watts. According to Watts, hard inquiries can lower your credit score up to 5 points.

The effect that an inquiry has on one consumer may be much different than that of another, since the makeup of your credit report has a major impact on how much a single inquiry can reduce your score. The number of accounts that you have as well as the general nature of your credit can influence the effect of a single inquiry.

One inquiry by itself may have a lesser effect on your scores than multiple inquiries in a short period of time. Most lenders view frequent inquiries as a sign of financial distress. Credit scoring models also account for this through greater penalties for frequent inquiries. In other words, a single inquiry may lower your score 1 or 2 points, while 5 inquiries could lower it up to 25 points. Since FICO scoring formulas are secret, we may only speculate on this impact based on information releases by Fair Isaac Corp.

Exceptions

Fair Isaac Corp. incorporated a couple of exceptions to how hard inquiries are recorded. These include all inquiries for either a vehicle loan or for a mortgage loan.

Applicants previously had a 10 day window, but now the exception spans 45 days. You may shop around for an automobile loan, applying with several different lenders without additional penalty. All of these related inquiries are grouped together on your credit report, and they are collectively counted as one single inquiry. Similarly, all mortgage loan inquiries within a 45 day window count collectively as one inquiry. This removes the penalty of shopping around for the best rate, which is a trait of smart consumer behavior. After all, are you really trying to buy 6 homes or are you just comparing offers?

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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