Do credit inquiries affect your credit score?

Do credit inquiries affect your credit score?

Although it may seem a little unreasonable, some inquiries do affect your credit score negatively. But the good news is that once you’re familiar with the process, you can lessen their impact significantly. Consider finding out about the types of credit inquiries and their specific impact.

For instance, both hard and soft inquiries show up on your credit report but may not impact it the same. This is one reason you should examine your report annually at a minimum. It also helps to check to make sure that you‘re maintaining a good credit score and there are no fraudulent, illegal or incorrect inquiries.

What are hard credit inquiries?

Every time you apply for a loan or credit, the lender sends a formal inquiry to a credit bureau (Experian, Equifax or Illion) for your credit score. This type of inquiry is known as a hard pull inquiry, or just hard pulls. Hard inquiries can hurt your credit score by 5 or 10 points every time they are conducted. Now while 5 or 10 points may not seem like much, if you’re not careful, this can quickly add up and make a dent in your credit score. Examples of hard inquiries include those that are made when you apply for a:

  • Mortgage or home loan
  • Auto, student or personal loan
  • Credit card

These inquiries require your express authorisation, which is usually included in your application. 

What are soft inquiries?

If you’re wondering does getting a credit report hurt your score, the answer is no. 

Checking your own credit report or score is a type of soft inquiry. Also known as soft pulls or soft pull inquiries, these don’t affect your credit score. Other examples of soft inquiries include those made for:

  • Pre-qualified credit card offers
  • Pre-qualified loan or insurance offers
  • Background checks by potential employers  

Although pre-qualified or pre-approved offers are soft inquiries, if you accept the offer, it is considered an application. At this point, the inquiry is then regarded as a hard pull. 

How do credit inquiries affect your credit score?

When you apply for a personal loan, mortgage or credit card, lenders inquire about your financial capacity before they approve your application. Too many hard inquiries may suggest that you’re in some kind of financial trouble and need a large amount of credit. People with frequent inquiries on their credit report are also typically more likely to declare bankruptcy than those with hardly any inquiries. This is why every hard inquiry translates into a 5-10 point reduction in your credit score. Lenders see people who’ve had multiple hard inquiries as more of a risk when deciding to lend them money or offer credit.

Do searches affect a credit score?

Credit searches are just another term for credit inquiries. So any search that qualifies as a hard inquiry will affect your credit score negatively. And any search that is considered a soft inquiry will not.

How long do credit inquiries affect your credit score?

All inquiries about your credit score, both, hard and soft pulls, will typically remain on your credit report for two years. But only hard inquiries made within the last year affect your credit score.

Is there any way to avoid hard inquiries while searching for the best loan or credit card offer?

Finding the right lender can get you a more suitable deal, including benefits like flexible repayment plans or competitive interest rates. But this may mean submitting multiple applications, which can affect your credit score quite significantly. Instead, with some careful research, you can identify lenders who offer terms that are suitable for your circumstances without making multiple applications.  

What about business loan inquiries?

Business loan applications are subject to similar inquiries about the financial capability of the business, which can affect their credit score. Unfortunately, many small businesses in Australia either do not know about or neglect the importance of business credit scores. On the other hand, your business credit score is separate from your personal credit score. This means any inquiries you make as a business, as long as you’ve registered your business name with ASIC, won’t impact your personal credit score.

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Learn more about credit score

Do landlords check credit scores?

For landlords, credit score checks can tell if a potential tenant has a history of delayed or missed rent payments. Usually, a poor record of repayments is likely to result in a low credit score. Also, your credit history may include information from tenancy databases such as the number of times landlords have inquired about your credit score. 

If there are too many inquiries within a short time, landlords may conclude that you have had issues renting in the past.  However, there is no rule as to when landlords check your credit score. Some might check every time they receive a tenant’s application. In some cases, landlords may even rent out their property to tenants with a poor credit history if they can submit additional documents or sufficiently explain their situation and how they are trying to address it.

 What credit score do landlords look for?

Landlords may look for issues relating to repayment rather than a specific credit score, although a low credit score probably suggests that you’ve had repayment issues. In general, if your credit score is categorised good, very good, or excellent - which corresponds to an Equifax credit score range of 622 - 1,200, landlords may not scrutinise your credit history too closely.

Can I check my credit score without a driver's license?

In Australia, your driver’s license is the preferred identification document for credit reporting agencies. This means you may not be able to confirm your identity using another document, such as a proof-of-age card. You may have genuine reasons like concerns over identity theft for not wanting to provide your driver’s license number. Unfortunately, most credit bureaus won’t allow people to check their credit score without a driver’s license. 

If you don’t have a driver’s license, there’s a good chance you haven’t applied for credit in the past and don’t have a credit score at all. In case you are concerned about identity theft, credit reporting agencies can offer you paid packages that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.