Getting free of debt and improving one's credit score is a common goal. Having a high credit score is more important now than ever, especially if you want to buy a home.
People often ask if looking at credit reports negatively impact their credit score. The answer is both yes and no. Here's what you need to know about how credit inquiries affect your credit score.
What Constitutes a Credit Inquiry?
A credit inquiry is what takes place when you request a credit report and check your credit score. This process can be done through a third-party provider, certain online banking provider apps, and by employers, banks, and loan officers.
Credit inquiries can be categorized as hard or soft inquiries, depending on the person who is requesting them and the purpose behind the inquiry.
Hard Inquiries vs. Soft Inquiries
What's the difference between a hard inquiry and soft inquiry when it comes to credit?
Soft inquiries are essentially status checks. If you look at your credit score via your online banking app, that would be a soft inquiry. They're also conducted by credit card companies and loan providers with whom you already do business. For example, when you receive a pre-approved credit increase from your credit card company, they've run a soft inquiry.
Hard inquiries take place when you apply for a loan, such as a mortgage or a line of credit. The inquiry is a part of the application process, in which the loan provider confirms that you meet their standards for borrowing.
What Impact do Inquiries Have on Your Credit?
Contrary to popular belief, a soft inquiry has no impact on your credit score. There's no reason that you shouldn't take a look every couple of months as you strive toward improving your credit score.
On the other hand, hard inquiries do have an impact on your score. This reflection will be recorded on your credit score as it's indicative that you're going to borrow money. Numerous inquiries indicate that you might be having financial trouble, making you a risk for defaulting on payments, and impacting your credit score.
Hard inquiries stay on your credit report. Working with a service such as DisputeBee credit repair can help you circumvent negative records and ensure that your report accurately reflects your credit history.
Fortunately, there are some safety measures put in place when conducting a hard inquiry. The impact on your credit score from one hard inquiry is light and won't make a lasting impression. Numerous inquiries for a specific product, like a mortgage, are usually viewed as shopping around for a deal up to an extent.
What's Really Killing Your Credit?
While a hard inquiry can harm your credit, it, alone, is not responsible for killing your credit.
Instead, the primary credit killers include defaulting on loans or making late payments. By ensuring that you pay your credit bills on time, you'll see your credit start to course correct.
Additionally, your credit ratio will impact your credit score. If you've been approved for a credit card with a $10,000 limit and your balance is $9,000, your credit score will be lower than someone who only has a $1,000 balance.
Even so, it's worthwhile to go back and look for negative payments that have been resolved but haven't been removed from your credit report. By disputing these and having them removed, you can start to rebuild your credit score.
How to Boost Your Credit Score
To boost your credit score, only apply for credit when you need it and avoid hard inquiries otherwise. No matter what steps you take, it's important to understand that it will take time for your credit score to be corrected. Be patient, and make those steps toward credit score repair.