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Understanding What Hard Inquiries Are And How They Affect Your Credit

Credit checks are one of the many things that can affect your credit, but precisely what they are and how they impact your credit can be challenging to understand. Hard inquiries are often a part of the credit score calculation, but you may not know how they work, what they do, or how they affect your credit. This article explains some of the basics of hard inquiries, as well as how they may affect your credit score.

What Are Hard Inquiries?

A hard inquiry is a credit report that a lender or other third party can pull. A hard inquiry is different from a soft inquiry because it is a formal search for information in the various credit reporting databases. They are usually made when you apply for new credit, such as a mortgage or student loan. If you receive one, you should work with your lender or other company to resolve any issues or disputes before attempting to re-establish good credit standing again. Credit scoring models rely on hard inquiries to determine a person’s creditworthiness. Essentially, these inquiries help lenders determine whether a specific borrower has good credit and how much risk there is with lending money to them.

How Does It Affect Your Credit Score?

Hard inquiries can negatively affect your credit score because it indicates that you have trouble making your debt payments. If you have missed several bill payments, lenders might assume you are likely to do the same again in the near future. It could result in your loan application being denied or your interest rates being increased. A hard inquiry occurs when a lender requests your credit report from the credit bureau to obtain the information it needs. Those inquiries appear on your credit report, and you may find yourself ineligible for new credit cards or loans.

What Triggers A Hard Inquiry?

Hard inquiries can be caused by a number of things and only take effect once you officially apply for a loan. They are not usually triggered in the pre-qualification stages. It is typically triggered when you apply for certain loan types, such as a mortgage, car loan, or student loan. In essence, if the creditor thinks you are at risk of defaulting on the loan, they will pull your credit report. In order to keep your personal finances in good shape, make sure you pay your bills on time to avoid potential hard inquiries on your credit history.

What You Should Do If You Receive A Hard Inquiry?

Fortunately, these reports only stay on your record for two years and typically stop having a negative effect after one year. According to Chron.com, you can remove these reports from your credit history if you feel you were targeted as a mistake. Although you can hire professional credit repair companies to help you with this process, it is often costly. You can perform the entire process yourself entirely for free, and if you follow the following steps, it is possible to see results within 24 hours.

Get A Copy Of Your Report

Get a free copy of your credit score from one of the three major credit bureaus:

  1. Equifax
  2. Experian
  3. TransUnion

At this stage, you should be aware that asking for a copy of your own report does not affect your credit score in any way.

Review The Hard Inquiries

Once you have received your credit report, you can begin to look through it and see which hard inquiries are worth targeting first. The best way to understand where to start is to prioritize the oldest ones first and work backward from there.

Gather Documentation

To begin the process without delay, you should get all of your relevant documentation together. This means your various IDs and proof of address etc. When all your paperwork is gathered, the process can begin without delay.

Draft A Removal Request Letter

This letter should be short and to the point to achieve the best chances of success. If your letter is overly ponderous, you run the risk that they won’t understand what you want, or it could delay your dispute. You should include all relevant information, such as the disputes and their corresponding numbers and accounts. If you have trouble drafting this kind of letter, you can always check online to find a template that you can follow.

Send Your Letter Of Dispute

Once you are confident that you have written your letter correctly and it contains all of the pertinent information, you should send it in toto the credit bureau from which you requested your report. You should note that you will need to send one letter per hard inquiry rather than list them all in one letter.

Is There Any Way To Limit Future Occurrences?

Although having a hard inquiry performed on your credit score is not a disaster as these things go, you should aim to limit the amount of them that you receive. You can often avoid having a hard inquiry done if you understand what causes the problem in the first place:

  • It is not a good idea to apply for multiple credit cards in a short period.
  • Don’t apply for credit cards unless you will actually benefit from using them.
  • Ensure that you perform a credit check before applying for a loan or credit card. This won’t harm your credit score.
  • Use pre-qualification tools before you apply for a credit card, which will allow you to check your creditworthiness without damaging it.

Other Steps You Can Take

Nowadays, you can find plenty of advice and information online that can help you keep your credit score clean, which will ultimately help you avoid these sorts of inquiries in the first place. Nonetheless, if you find yourself in this position and cannot fix the issue yourself, you can use a credit repair company. If you are looking for a good resource on credit repair, you can often find reviews online, which will help you make an informed decision. Once you have found a company you believe is a good fit for your needs, you can contact them and arrange an initial consultation.

Hard inquiries can affect your credit, which is why it’s essential to avoid them whenever possible. Fortunately, there are some steps that you can take that will allow you to minimize the effects, including disputing the inquiry, which has the possibility of removing it from your report altogether.

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