If you take a look at what makes up a FICO credit score, you’ll notice that inquiries/recent credit makes up 10% of that score. An inquiry is basically where a bank or any other institution takes a look at your credit report. Depending on how they do it, they can either get general information, or up to the day information. But how can you tell between the different types of inquiries, and which ones impact your credit score?
A soft inquiry is when someone looks at your credit report, but it will not give up to the exact date updates. A soft inquiry is great because not only does the inquiry not show up on the credit report, but it will give information that is good enough for certain purposes. Soft inquiries can even be done by you. Any sort of credit monitoring services like credit karma or credit sesame will run soft inquiries on your credit report.
A hard inquiry on the other hand is when more detail is needed. When it comes to financial decisions, such as applying for a loan or a credit card, hard inquiries are usually run. This is due to the more up to date information that can be found by doing a hard inquiry. These types of inquiries show up on your credit report, and as you would imagine, impact your score. The more hard inquires you have, the worse that section of your credit report will fare.
Because inquires come up when calculating your FICO score, it’s important that we know the difference between the two different types. While we can check our credit pretty easily, it thankfully doesn’t impact our score. On the other hand, when someone needs that detailed information on our credit report, a hard inquiry must be done.
While a hard inquiry always sucks, it’s not the end of the world. In fact, having inquiries can be very beneficial, as they can get us better credit cards or even loans to help us out in life. The fact that they stop counting against your score after 1 year, and they drop off in 2 is just icing on the cake. If/when you need to make a big financial decision, don’t hesitate to do so, just because of the hard inquiry!