You recently reviewed your credit report and noticed a slew of credit inquiries. Some were familiar, but there were several others that you had no recollection of. Even worse, you know that credit inquiries have the potential to lower your credit score and are worried that your score is in the trenches for this very reason.
Sounds familiar? Before you start calling up creditors and lenders demanding to have the credit inquiries removed, read this guide to learn more about the different types of credit inquiries, how they impact your credit rating, and what to do to have them removed.
What are credit inquiries?
There are two types of credit inquiries you should be aware of.
Hard (voluntary) credit inquiries
Each time you apply for credit, a hard credit inquiry is generated. This means that you have completed an application for a loan or credit card product and authorized the lender to access and analyze your credit profile in order to make a lending decision.
Soft (involuntary) credit inquiries
These are credit checks you initiate to review your credit health. Soft credit inquiries also include those that are associated with credit pulls from companies that analyze your profile to determine if you’re a good fit for their special promotions. This is most common with credit card companies that are looking to mail out a ton of pre-approval letters in hopes of landing new customers.
In some instances, your existing creditors may also use soft credit inquiries to determine if you’re eligible for a credit line increase or special financing. And others could perform routine credit checks to get a feel for your credit health, which could mean bad news for you if they decide to lower the limit or close your account altogether.
But what about loan or credit card pre-approvals that you initiate? These also count as soft credit inquiries and are sometimes offered by lenders and credit card companies to give prospective customers an idea of what they’d qualify for if they decided to do business with them.
How do credit inquiries impact your credit score?
Hard credit inquiries could decrease your credit score by up to five points, but the impact depends on several factors, notes myFICO. These include:
- How many accounts of a specific type (i.e. revolving and installment) were recently opened in comparison to the accounts you already have
- The volume of hard inquiries that have recently appeared on your credit report
- The length of time that has passed since you opened any revolving or installment accounts?
However, you should refrain from applying from too much credit in a short window of time as your score could take a hit. In addition, prospective lenders and creditors could perceive you as a risky consumer that is desperate for credit, even if you aren’t.
An exception to the rule applies when you’re shopping around for the best rate on a loan product. More on that shortly.
On the other hand, soft inquiries do not impact your credit score because they are derived from requests to view your own credit or involuntary credit pulls from prospective lenders and creditors.
Rate shopping
While it’s generally a good idea to refrain from applying for too much credit at once, an exception to the rule applies when shopping around for loan products. Why so? Well, accepting the first offer for a loan that you receive could mean you’ll be spending more in interest over the life of the loan than you probably should. But by shopping around, you give yourself a better chance of securing the most competitive loan product for your financial situation with an interest rate that isn’t too outrageous.
Wondering how rate shopping works? In a nutshell, it allows you to explore loan options and even apply with multiple lenders within a certain time frame (45-day shopping period under the most recent scoring model) in order to find the most suitable loan product for your financial situation without dinging your credit score. How so? Well, multiple inquiries are grouped into one, so your credit score only gets hit once, and not the number of times you apply.
Rate shopping also helps you save a bundle of cash that would be otherwise be paid in interest if you go with the loan product that is accompanied by the lowest interest rate. It applies to the following types of loan products:
- Mortgages
- Auto loans
- Personal loans
- Student loans
Word of caution: rate shopping is quite beneficial to consumers, but it’s important to refrain from shopping until you are certain that you’re ready to make a purchase. Otherwise, you could end up with dings to your credit.
How long do credit inquiries stay on your credit report?
Credit inquiries are reflected on your credit report for two years. However, hard inquiries will only be factored into your FICO score for 12 months.
What happens if you check your own credit?
Nothing will happen when you check your own credit. And since it’s a soft inquiry, there won’t be any impact to your credit score.
How should you handle hard credit inquiries that are unauthorized?
If you retrieve a copy of your credit report and notice unauthorized hard credit inquiries, you have two options:
- Ignore them altogether. As mentioned earlier, inquiries that are over a year old have no bearing on your credit score. Therefore, it may not be worth the effort to file a formal dispute to have it removed from your credit report.
- Contact the creditor or lender directly to have the inquiry removed.
- File formal disputes. You can do this by drafting up a formal letter and sending it to each of the three credit bureaus.
How to file a formal dispute to have hard inquiries removed from your credit report
- Step 1: Circle or highlight any unauthorized inquiries that appear on your credit report.
- Step 2: Draft up a letter to each of the credit bureaus that specifies which inquiry is unauthorized, along with a request that it be removed. Also, be sure to include your name and address so the credit bureaus will know where to send their response. Letters should be sent to the following addresses:
Equifax: P.O. Box 740256, Atlanta, GA 30374-0256
Experian: P.O. Box 9701, Allen, TX 75013
TransUnion: P.O. Box 2000, Chester, PA 19016
- Step 3: Send the letters via certified mail with a return receipt to each of the three credit bureaus. That way, you’ll know if they arrived and when.
- Step 4: Await a response. You should hear from the credit bureaus within 30 days via mail. Regardless of the outcome, the package will also include a copy of your credit report (with any changes that were made). But if the credit bureaus refuse to respond, the inquiry must be removed.
Quick note: If you don’t feel comfortable handling the dispute process on your own, you have the option to hire a credit repair company. But because their services are accompanied by a fee, it may be worthwhile to only hire a credit repair company if you have other credit issues that need to be addressed.
How to prevent unauthorized access to your credit report
You can prevent by placing a security freeze or credit lock on your profile. Security freezes are a great way to prevent future access to your credit profile if it’s already been exposed. But credit locks are designed to minimize the risk of unauthorized access to your credit report.
How security freezes work
Security freezes prohibit lenders and creditors from viewing your report. And in order for them to access it, you provide the creditor with a PIN or unique password. But you will always have access to your information. There is no cost to place a freeze on your credit report. You should also know that security freezes are governed under the federal law.
How credit locks work
Similar to security freezes, credit locks restrict lenders and creditors from accessing your report. However, your report can be unlocked right away via the credit bureau’s website from your computer, laptop, or mobile device. TransUnion and Equifax allow you to place a credit lock on your credit report free of charge, but Experian charges a $9.99 monthly fee after the first 30 days.
The bottom line
Before you take the necessary actions to have inquiries removed from your credit report, determine how much longer it will impact your credit score. If it’s nearing the 12-month mark, drafting up a letter to send to the credit bureaus may not be worth the effort.
But if there are several recent inquiries, working to have them removed could improve your score. And if you don’t want to do the legwork, hire a professional credit repair company to do it for you.