A hard inquiry (also known as a hard pull) occurs whenever a person applies for credit and the financial institution needs to review that person's credit history.
Credit card companies use hard inquiries to determine whether to approve an applicant and how big of a credit limit to give their account. Other financial institutions use hard pulls to help determine the interest rate on home, auto, and student loans.
When a financial institution makes a hard inquiry, it usually only pulls the credit report from one of the three credit bureaus. In rare cases, the bank will make a hard inquiry with all three credit bureaus.
Hard inquiries can negatively impact your credit score
"New credit," which includes hard inquiries and new credit accounts, accounts for 10% of your FICO score. Applying for a bunch of new credit cards and loans in quick succession can signal risk to future lenders, so more hard inquiries push your score lower. Hard inquiries will have a bigger impact on a person with a shorter credit history and fewer accounts.
That said, multiple inquiries for the same type of loan from several financial institutions in a short period don't have the same negative impact as multiple inquiries for different types of loans. It's common to shop around for a good interest rate on a loan, so just be sure you do all your research within a two-week period to be on the safe side and protect your credit score.
A hard inquiry will stay on your report for two years, but the effect on your credit score diminishes over time. The impact of a hard inquiry usually disappears before it falls off your credit report.
Hard credit inquiry vs. soft credit inquiry
A hard credit inquiry isn't the only way got financial institutions to get a copy of your credit report. They can also do a soft credit inquiry, which has no impact on your credit score.
Soft inquiries, such as conducted for background checks or pre-qualified offers, may or may not show up on your credit report. Regardless, you'll be the only person able to see the soft credit inquiries. Financial institutions doing a hard inquiry will not see them at all.
So, what requires a hard credit inquiry and what requires just a soft inquiry?
- Applications for a new credit card, mortgage, mortgage refinance, auto loan, or student loan
- Some landlords will also make a hard inquiry
- Some banks will make a hard inquiry when you open a new bank account
- Checking your own credit score or acquiring a copy of your own credit report
- Background checks (for employment, etc)
- Pre-qualified offers from credit card companies, banks, and insurance companies
An early indicator of identity theft
You must approve every hard inquiry before it's made. If you see a hard inquiry on your credit report that you didn't approve, it could indicate identity theft. Be sure to file a dispute with the credit bureau if you see an unauthorized hard inquiry on your report.
The sooner you catch the issue, the easier it is to mitigate. Experian provides instant alerts via email when a financial institution makes a hard inquiry through freecreditreport.com. Capital One's CreditWise app will send you an instant update whenever there's a hard inquiry on your TransUnion credit report. The Equifax mobile app will provide instant alerts for pulls of its bureau's report.
An unapproved hard inquiry could also be the result of an error on a financial institution's end (typos happen). Regardless, you'll want to dispute it and you may need to file a complaint with the Consumer Financial Protection Bureau if a bank continues to make unauthorized hard pulls.
Keep your inquiries low and your credit score high
Limiting the number of hard inquiries on your credit report is key to maximizing your credit score. It's certainly something to take into account, but considering hard inquiries only count for about 10% of your credit score, it's not something most people need to be overly concerned about.
The bigger issue may be the potential indication of identity theft if you find a hard pull that you didn't authorize. That's why it pays to pay attention to your credit. With plenty of free credit monitoring services available online, it takes just a few minutes per month to stay on top of things.