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If you've gone shopping in any retail store over the past few years, chances are you've been asked if you'd like to apply for a store's credit card. Here's one consumer's story of what they were told by a salesperson, what actually happened, and how you can protect yourself from a similar situation happening to you.

Loren's story

A few months ago, during the holiday shopping season, Loren (who is a Motley Fool employee) was shopping at a certain major retailer and a salesperson offered the opportunity to apply for the store's credit card. Loren agreed, but only if the application wouldn't result in a hard credit inquiry, which was confirmed by the salesperson.

The salesperson proceeded with the standard collection of information, such as Loren's Social Security number and other identifying information.

Two days later, to Loren's surprise he found out his application did trigger a hard credit inquiry, which as most consumers know, has the potential to hurt your credit score. Upon contacting the retailer's credit department, Loren was told that the retail employee did not have the expertise to provide this information, so no further action could be taken to eliminate the inquiry.

It's impossible to know whether the salesperson in question was deliberately misleading Loren in order to meet a sales goal, or if they simply don't know how their credit card issuer operates. In the real world, I'd say it's safe to assume that both types of salespeople exist, and the best way to protect yourself is to know how credit inquiries work.

So, in the interest of preventing a similar situation from happening to you, let's take a look at how harmful credit inquiries can be, and what you can do if you feel misled.

Hard vs. soft credit inquiries

The first thing you need to know is that not all credit inquiries are the same. Specifically, credit inquiries fall into one of two categories -- hard or soft. Hard inquiries are the ones that are considered by the FICO credit scoring formula, so these are the inquiries you need to worry about.

In a nutshell, a hard inquiry typically results from you applying for new credit. If you fill out an application for a mortgage, auto loan, or credit card, for instance, it's probably going to result in a hard inquiry on your credit.

On the other hand, a soft inquiry can occur for a number of reasons that don't involve you applying for new credit. For example, when you apply for auto insurance, your premiums may be partially based on your credit score, so the insurer may perform a soft credit inquiry. Another common situation is "pre-approved" credit offers. Creditors may take a look at your credit report for the purpose of offering you a credit card or loan, but if it wasn't initiated by you, it will result in a soft inquiry.

How much can a hard inquiry damage your credit?

The short answer is "not much", although there is more to the story.

Your FICO credit score is based on five categories of information, and the "new credit" category makes up 10% of your score. Furthermore, hard credit inquiries are just one part of this, as this category also considers the new credit accounts you've actually opened.

The reason that hard credit inquiries can negatively impact your score is that FICO's research shows that opening several new credit accounts is correlated with greater credit risk.

Once a hard inquiry hits your credit report, it will remain there for two years. However, the FICO scoring model only considers credit inquiries from the past 12 months, and individual inquiries carry less weight as they get toward the 12-month threshold. In other words, a hard credit inquiry that was completed last week will (theoretically) impact your score more than one that was done 11 months ago.

The good news is that a single hard credit inquiry is unlikely to do serious damage to your credit. In fact, FICO says that for most people, one additional credit inquiry should take less than five points off their scores. Furthermore, there are special rules that allow multiple mortgage or auto loan inquiries to be treated as a single inquiry, if they are completed in a short amount of time.

The bottom line is that one hard credit inquiry shouldn't do too much damage to your score. That doesn't mean that you should let just anyone pull your credit, especially if you're not expecting it.

Credit score check

Source: Getty Images

A small impact on your credit score can have a big impact on your wallet

Here's the problem. Many lenders use specific "tiers" of FICO scores when determining the interest rate a potential borrower can qualify for. For example, an auto lender might offer its best interest rate to borrowers with a FICO score of 740 or higher. So, a borrower with a 741 would get the best rate. One with a 739 would not.

To illustrate this, let's say that you're in the market to buy a new home and plan to borrow $200,000 with a 30-year mortgage to fund the purchase. As of mid-May, here are the national average interest rates for different FICO score ranges, and the monthly payments they would produce on a $200,000 loan:

FICO Score Range

Average APR

Monthly Mortgage Payment

Total Interest Over 30 Years

























Data source: Mortgage rates are as of 5/5/2017.

Here's the point. Let's say that at the time Loren applied for the store credit card, his FICO score was 702. If the hard credit inquiry dropped Loren's score by just three points to 699, which is entirely possible, it could result in Loren paying $7,390 in additional mortgage interest. That's why an unexpected hard credit inquiry could be a big deal.

Do any credit card issuers not do a hard credit check?

Not really. After considerable investigation, I can't find any major credit card (Visa, MasterCard, American Express, Discover) or store credit card application that specifically says it won't result in a hard credit pull.

There are some workarounds, however. For example, there have been reports of something known as the "shopping cart trick" that works on cards issued by Comenity Bank. Basically, if you're offered to sign up for a credit card in a store's checkout page, you can accept the offer without generating a hard credit pull. Even so, it is not an official rule, so it's always possible that it would result in a hard inquiry.

To sum it up, anytime you're actively applying for a new credit account, assume that it will result in a hard credit pull, unless you specifically have been shown in writing that it won't.

What you can do if you've been misled

If a creditor ran a hard credit check on you, and you feel that you didn't authorize it, you do have some recourse.

You have the ability to dispute a hard credit inquiry, either with the three major credit bureaus (Equifax, Experian, and TransUnion), or with the lender themselves. If you feel that an inquiry was unauthorized, disputing through the credit bureaus seems to have a high probability of getting the inquiry removed.

One caveat -- the Fair Credit Reporting Act states that a creditor shouldn't have access to a consumer's credit information unless they have written permission. So, even if a store employee told you a hard credit check won't be performed, if you signed a credit application (with an actual signature or electronically), and the application states that the lender may check your credit -- which most credit applications do -- you may find yourself fighting an uphill battle to get the inquiry removed. In Loren's case, the act of submitting the credit application could potentially be used as written proof of permission to complete the inquiry.

In this case, you can always try to dispute the inquiry with the lender themselves. Explain the situation, and see if they'll remove the inquiry as a goodwill gesture. They may do it in order to keep your business, so it's certainly worth a shot if the inquiry is or could be causing you trouble.

At the end of the day, however, the only way to be 100% safe as a consumer is to read the fine print when it comes to hard credit inquiries.

Matthew Frankel owns shares of American Express. The Motley Fool owns shares of and recommends Mastercard and Visa. The Motley Fool recommends American Express and Experian. The Motley Fool has a disclosure policy.