How Hard vs. Soft Inquiries Affect Your Credit Score

There are a lot of things consumers have to keep track of when trying to maintain their good credit scores, and that includes everything from late payments to how long they've had the various accounts that are in their names.

But one thing that many consumers may not know is that whenever anyone checks their credit in some way, that counts as what is known as an "inquiry" and can likewise affect their standings. However, it's important to note that there are two very different designations of credit inquiries — both "hard" and "soft" — and keeping that in mind can help to protect one's standing overall.

What is a soft inquiry?
As the two names might suggest, a soft inquiry is one that will have no impact on a person's credit rating, and are generally designated as  those that are being made by a party that is not a lender to which a potential borrower has applied. For instance, when consumers take the time to check their own credit, that merely counts as a soft inquiry and will not alter their scores at all.

The same is true of when companies check a person's credit before sending him or her a preapproved credit card account, as well as those that already control accounts in a borrower's name.

In general, it's important to keep these facts in mind because consumers should never be worried that their trying to keep close tabs on their credit in general will affect their credit ratings, or serve as any sort of deterrent to doing so.

What is a hard inquiry?
On the other hand, a hard inquiry is one in which a lender to which a person has applied for a new line of credit takes a look at that individual's borrowing history, and these can certainly affect his or her overall standing.

Applying for a mortgage, credit card, auto loan or other type of financing will lead to such an inquiry, and each application sent out will likewise affect a borrower's standing. A number of inquiries made within a week or two of each other will not affect a person's standing, as credit scoring firms see this as a person being diligent about shopping for the best possible rate. However, repeated applications sent in to lenders over a period longer than that can have a significant detrimental impact for those who are continually rejected because of their existing credit standings; each inquiry can lower a person's rating by as much as five points or sometimes more, and that can add up quickly to those who are desperate to receive new financing.

In general, consumers are allowed to have one hard inquiry made in their names every so often, without having it affect their credit standing in any way, but any more than that will likely lead to a lower score.

What can be done to improve standings?
Of course, having to make a number of hard inquiries within a short period may be symptomatic of not having good credit already, and therefore repeated applications being submitted for new financing can only worsen their situations unless they first take the time to boost those ratings. This can be done in a number of ways but perhaps the simplest is to just make sure to avoid all late payments and keep debts as low as possible. These two factors alone make up a total of 65 percent of a person's score, and as such, it is important to keep both under as much control as possible.

For instance, those who have sent in bills late in the past can begin to make up for it by making several months' worth of on-time payments, which helps to show lenders that the missed deadlines were not indicative of future behavior, but rather just a one-time slip-up that will not be repeated. In all, payment history comprises 35 percent of a person's score.

On the other hand, it's likewise important to make sure that the debt loads being carried across all credit card accounts are being kept under control with respect to how much a person is allowed to borrow. "Credit utilization," as it is known, makes up 30 percent of a person's score and is tied to the percentage of his or her overall credit limits being used at any one time. In general, lenders like to see this proportion kept to 30 percent or less to max out this portion of a score.

Consumers worried about their credit standings overall may want to take the time to order copies of their credit reports, and check them over closely for any unfair markings that might be dragging down their scores. If any are discovered, working with a credit repair company can help put the situation back in order.

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