The Truth About Credit Inquiries

You’ve heard it before: Too many credit inquiries will ding your credit score. It’s a big reason why people don’t want to shop multiple mortgage lenders as they don’t want multiple pulls to affect their score. So what’s all the fuss about? 

Credit inquiries fall into two categories: hard inquiries and soft inquiries. Hard inquiries do show up in your credit history and can have an impact on your score. Soft inquiries, on the other hand, do not. Whenever you check your own credit or when a potential employer conducts a background check, this is most likely a soft credit score. Mortgage preapprovals can be either hard or soft. You’ll need to have a hard credit pull in order to get a mortgage, but some companies can pull a soft pull at the preapproval stage and then get a hard pull later.

Each hard inquiry can lead to a small, temporary dip in your credit score. The impact is typically minimal, with a decrease of a few points per inquiry. However, multiple inquiries within a short timeframe can compound the effect, potentially resulting in a more noticeable decrease.

However…recognizing that consumers may shop around for the best loan terms, credit scoring models often consider multiple inquiries for certain types of loans within a specific timeframe as a single inquiry. This is commonly known as a "shopping window." For example, if you're shopping for a mortgage or auto loan, you have 45 days where multiple inquiries are treated as a single inquiry, so your score is only impacted once.

While credit inquiries have an impact, it's crucial not to let fear of a slight score decrease deter you from making informed financial decisions. Shopping around for the best loan terms is a responsible approach, and the impact on your credit score is a small price to pay for securing favorable terms.