5/31/2023
The accurate monitoring of your credit history in the United States can be the difference between a quality of life with more choices. Often, a hard inquiry can take you from a very favorable rating to one with fewer benefits. That's why you should know what it is, how it works and some of its secrets.
What is a hard inquiry and how does it work?
Within the dynamics of financing, a hard inquiry represents a type of request for information.
This process includes viewing your entire credit file, for which they will take a few points off your score. Also known as a hard pull, creditors and lenders use it to decide whether to give you money or not.
You should know that these requests by anyone who wants to study your financial behavior must receive your consent. With your permission, creditors or lenders can choose the bureau and format they prefer.
Usually, they use Equifax, Experian or TransUnion, but some opt for alternative companies that may give them a more in-depth perspective.
A hard inquiry is usually associated with the following applications:
- Credit cards
- Apartment rentals
- Personal or non-personal loans (auto, home, etc.)
- Telephone lines or utilities (cell phone contract, energy, gas, etc.).
How many points does a hard inquiry take away from your score?
In general, a hard inquiry can take away an average of 10 points. In many cases, it can be a minor discount, which represents a short-term setback. The folks at FICO explain that for most people, an additional hard inquiry will subtract about 5 points from their score.
These specialists also point out that this kind of inquiry stays on your report for about 2 years. However, when calculating the FICO score, the system only considers credit inquiries made in the last 12 months. This means that any inquiries older than 1 year do not affect your score.
Impact of multiple hard inquiries on your score
Making multiple hard inquiries will not always affect your credit score. For example, when you are comparing financial products such as mortgages or auto loans, it is normal for multiple requests to view your information to appear. The major bureaus understand this behavior and do not penalize you severely.
For this reason, a certain number of inquiries for the same type of financing is counted as one, as long as they occur within a set period of time. In the old scoring models, consolidation occurred within 2 weeks. Today, you have up to 45 days to evaluate alternatives and pricing.
This is not the case when it comes to credit cards. Each time you apply for one, you add a hard inquiry to your file. This accumulation of subtracted points can have a negative impact on the terms you receive, especially if you go from excellent to very good.
We suggest waiting 90 days between applications when applying for credit cards.
Do you get points deducted for reviewing your credit file?
Not really because this action corresponds to a soft inquiry. Nowadays there are many companies and apps that let you check or monitor your score at no cost, especially VantageScore. When there is no actual inquiry on your report, they will have no effect on your score.
This also happens when you do a free review of your credit file at one of the 3 major credit bureaus. Every time you do it to check your progress, analyze your behavior or to make sure there are no errors, it counts as a soft inquiry.
Relevant considerations regarding hard inquiries
Keep in mind that some creditors place greater emphasis on the credit score, having minimum requirements in the terms of the contract. As a general rule, your file usually represents half of the information to receive administrative approval. They will also look at your income-to-debt ratio, which is essential to getting a loan.
In addition, lenders have customized their technology and contracting processes to generate approvals based on qualification parameters and credit reports. Although it may not seem like it, many personal loans and credit cards do not have a published minimum score, but the same is not true for mortgages.
As for qualification values, most creditors use the 28/36 rule. For standard loans, the ideal income-to-debt ratio should be below 36%.
For mortgage loans, the lender looks at the percentage of household expenses, which should be below 28% if you want to be approved.
Now that you know how a hard inquiry works, we invite you to compare financial products in the Busconómico database, where you find the best options in one place.
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