You may or may not be aware that every time you apply for credit and an inquiry is made on your credit report, it counts against you and reduces your credit score. Furthermore, alarm bells could well go off when a potential credit grantor sees multiple credit inquiries. In order to maintain a good credit profile and score, you want to keep these inquiries to a minimum.
There are two types of credit inquiries, a hard and a soft inquiry. Only hard inquires have a negative effect on your credit score. Let’s take a look at the difference between the two.
Hard inquiries
These are inquiries that occur when you apply for a home loan, vehicle finance, credit card, personal loan, or other forms of finance or credit. They will also happen when you wish to increase or extend existing credit and the financial institution makes a new inquiry.
The effect on your credit score is not huge but if there are a number of inquiries or your score was already borderline, it could impact your ability to get credit or result in a less favourable interest rate.
If you are shopping around for preferential rates for finance or a loan, try to do them all around the same time. That way, potential credit grantors will see what you are doing and why and take this into account.
Soft inquiries
These do not affect your credit status and come from background checks or inquiries where you are not actually seeking credit. Examples would be screening by potential employers or employment agencies, landlords if you are looking to rent, insurance companies, and financial institutions that are checking your credit rating for promotional purposes to send you a pre-approved loan or credit card offers. If you check your own credit, this will also be a soft inquiry.
It is not a bad idea to check your credit report from time to time a look at the inquiries in your name. You are entitled to one free copy of your report per year so request this from the credit bureaus. A hard inquiry you are not aware of could be an indicator of fraud or potential identity theft so it would be a good idea to investigate them.
