You’ve recently gotten a raise! How exciting is that?
You deserve more, right? So, you contact your bank institution and request for a credit limit increase.
After a while, you see an advertising of that nice car that you were dreaming on being yours. Then, you contact an online program and apply for an auto loan, and the result is…
You were rejected.
What happened? As long as you remember, your credit score was fine. Is there any reason why you should not get that loan?
The problem is you pilled up Hard Inquiries on your credit score. It’s OK to apply for credit lines, but the nature of these applications and how they affect your score, are as important as the application itself.
In this post, we’ll cover what is a credit inquiry, types of inquiries and how to cut them out off your credit report.
What Is Credit Inquiry
A credit inquiry is a request by a business or institution for your credit report. The request is from a credit report agency, such as Experian, Equifax or TransUnion.
The request happens when you apply for a credit line with a business or credit institution so they can judge your creditworthiness. They might be banks, insurance companies, credit card companies, utility companies, and others.
There are two types of inquiries. Hard inquiries (or hard pulls) and soft inquiries (or soft pulls). Let’s cover each one of those types.
Soft Inquiries or Soft Pulls
Soft inquiries does not affect your credit score, because there is no lender reviewing your credit to apply for a product requested by you.
If you check your credit score by yourself or through a credit bureau, that’s considered a soft pull. If your employer or insurance company access your credit history to calculate your score, that’s a soft inquiry. The same rule applies if your current creditor checks your history on an ongoing credit card or loan program.
Hard Inquiries or Hard Pulls
Hard inquiries deeply affect your credit score.
If you apply to borrow from a lender, they will judge if you qualify for that loan and that count as hard inquiry. In that process, they will evaluate all your credit history and credit score. Here are a few examples of when hard pulls happen:
- Auto loan.
- Student Loan.
- Credit Card.
- Personal Loan.
- Business Loan.
- Cellphone plan.
- Credit Line increase.
- Business credit card.
- Employment background check.
- Lease rental application.
When that happens, your credit report registers the hard inquiry. It will also show the name of the lender, principal, loan amount, length of time between inquiries, date of application and type of credit.
The hard pull deducts up to 10 points from your credit score each, depending on your credit profile (history and inquiry circumstances). The FICO considers different credit inquiries in different ways. Some people may loose more points compared to others.
The inquiry will stay on your report for 2 years. Regardless of whether your application was accepted or declined. The good news is it impacts your credit score for less than 12 months.
Now that you know Hard Inquiries affect your score, let’s see how to eliminate those pulls from your report.
- How To Get Rid of Hard Inquiries.
Thanks to the Fair Credit Reporting Act, there’s only one way to cut Hard inquiries out of your credit report.
The dispute process is available only if you did not authorized a specific hard pull on your report. There are two ways of dispute.
On the first one, you can investigate the unauthorized items on your own.
First, check your credit report and go to the “Credit Inquiries” section. Look for unauthorized items and creditors, them, write a formal letter and ask each creditor (or credit bureau) to remove the items. Be aware that the credit bureau will investigate the validation of your request.
The second option is that you can contact a professional credit repair company to help you. They are professionals who will make the process run accordingly and save you a lot of time dealing with your creditors by phone or e-mail.
Friendly tip: it’s better to hire these companies when you have other issues but not limited to removing inquiries. Otherwise, the service might not worth the price.
Beware! Do not trust on institutions or people that promises to cut inquiries that you authorized! You cannot remove inquiries just because you’ve changed your mind or because you don’t want them in your report. This is not legal!
Still, there are measures you can take when waiting until your score gets back up.
Managing your finances during the waiting period.
The first tip is obvious but as important as the others: Be patient. In the worst case, hard inquiries will affect your credit report by 12 months. In the mean time, you can take measures to manage your finances properly.
Freeze your credit report.
This alternative prevents lenders or institutions to access your credit information. It is also extremely helpful in cases of fraud or identity theft because no one can open an account on your behalf.
Important note: if you want to apply for a loan or a mortgage soon, this is not a good option because freezing and removing your report incurs fees.
Slow down your applications.
This is by far the easiest option during your waiting period. Good financial habits or applying for credit once every 6 months (at least) helps to maintain your score.
Take alternatives that do NOT create inquiries.
Some actions cannot generate inquiries, giving you more freedom and options during the waiting period. Switching loan types (e.g. variable to a fixed rate), purchasing a prepaid phone or closing an existing loan or line of credit are good options.
Some crediting score models treat multiple inquiries as single inquiries, so you’re able to shop around for the same type of loan. But be careful, it depends on the type of credit you are shopping around.
For example, you may apply for an Auto Loan on multiple inquiries for the next 14 to 45 days. However, if you pretend to apply for a mortgage, it’s better to wait longer to shop around.
Search for pre-approved credit lines.
When your credit institution sends you a pre-approved program, this is a soft inquiry. So instead of requesting for programs, be aware of pre-approved opportunities so you can keep your score up.
Watch your credit.
To prevent any unauthorized items or fraud in your credit report, always evaluate each item periodically. In that way, you will make sure that everything is correct.
Monitoring your credit report is the easiest and most affordable way to keep track of your inquiries. Also, planning ahead and avoiding your score to drop down will prevent headaches on your report.
The only inquiries that you can remove from your report are the unauthorized ones. Remember to act legally and ethically with good communication with your creditors.
Are you having issues on getting a credit program because you pilled up too much hard pulls? If you have any questions on how to proceed, feel free to contact us!