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Are You Aware of the Impact Credit Inquiries Have on Your Credit Score?

May 24, 2016

On our blog, we've often discussed how important it is for you to check your credit report at regular intervals. By examining your credit report once every few months, not only can you stay on top of your credit, you can also take steps to correct mistakes immediately. While scanning your credit report, you may have come across something called inquiries. To know what these are and how they affect your credit score, read on!

There are two types of inquiries that may be listed on your credit report – soft and hard. Soft inquiries are all credit inquiries where your credit is not being reviewed by a prospective lender. Rather, your report is being consulted for a background check only. Examples include inquiries made by businesses where you already have a credit account, pre-approved loans and promotional offers by credit card companies. A soft inquiry may occur even when you check your own credit score. However, you need not worry about these kind of inquiries, as they have no impact on your credit score.

What you need to track and monitor closely, however, are hard inquiries. These inquiries occur when you apply for a loan, credit card or mortgage, or when you request a credit limit increase. In other words, a hard inquiry means that a potential lender is reviewing your credit because you've applied for credit with them. Depending on your unique credit history, a single hard inquiry can lower your FICO score by one to five points, and remain on your credit report for up to two years.

Naturally, the greater the number of hard inquiries in a short period of time, the higher the damage that can be caused to your credit. Credit bureaus tend to read multiple hard inquiries as a signal that the borrower may be in dire need of credit, or that he can't qualify for the credit that he requires. Future creditors also interpret multiple hard inquiries negatively, and assume that they imply a high risk borrower. In fact, according to myFICO, compared with people who have no inquiries, people with six or more hard inquiries on their credit report are up to eight times as likely to file for bankruptcy.

There are instances when, depending on the situation, your actions may result in a hard or soft inquiry – for example, when you rent a car or apply for Internet service. In such cases, it would be best to seek clarification regarding the result of your activity from the financial institution from which you are requesting financing.

Another exception is when you are shopping around for the best mortgage, auto or student loan rate. If you do all your shopping for the same type of loan within a 14–45 day period, FICO may record this as a single inquiry only.

A consumer is allowed to dispute hard inquiries if they have occurred without his permission. Hard inquiries can be challenged by contacting the creditor, or by directly disputing them with the relevant credit bureau.

Hard inquiries are viewed negatively and are therefore undesirable on your credit report. These inquiries may result in a lower credit score, which in turn may translate into fewer credit options or higher interest rates. However, as long as there aren't too many on your report, it is unlikely that they'll have a huge impact on your credit. This is because credit scoring models weigh other factors, such as payment history, credit history and credit utilization rate far more heavily.

In order to maintain a high credit score, we recommend that you check your credit report at regular intervals to ensure that there are no unauthorized hard inquiries. On the other hand, in order to obtain business loans at extremely low rates all you need to do is check in with us at Fund&Grow. Our team of experts can help you get access to unsecured zero interest business credit lines quickly and easily, and without any proof of income whatsoever! Call us at (800) 996-0270 to learn more about this today!

I take tremendous pride in building positive and lasting relationships in my businesses and personal life. Every member of my team is committed to helping our clients get the maximum amount of funding possible and achieve their highest growth potential.

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