What is a Hard Inquiry? Tips and Advice for Borrowers

Aspiring homeowners inevitably realize that in order to qualify for a home, they’ll need to get their credit pulled by the lender to assess their creditworthiness. 

One of the results of this process is a hard inquiry, also known as a hard credit check. A hard inquiry occurs when applying for a new line of credit, including mortgages, car loans, credit cards, and more.

Hard inquiries can have a temporary impact on your credit score, although this is nothing to worry about when shopping for a home.

This article discusses hard inquiries, what they entail, and some tips and advice for aspiring homeowners looking to buy a house in the near future.

Understanding Hard Inquiries 

Hard inquiries on your credit are a normal occurrence when shopping for a home. The reason lenders need to do a hard credit check is to verify your credit score and the risk of lending to you as a borrower.

Here's a breakdown of how hard inquiries work and their implications:

Credit Inquiry Process

When you apply for a mortgage or other credit, the lender will request your credit report from one or more credit bureaus to assess your creditworthiness. The credit bureaus keep track of these inquiries on your credit report.

Credit Score Impact

Each hard inquiry can cause a slight dip in your credit score. Typically, a single inquiry has a minimal effect on your score, but consecutive inquiries may have a more significant impact. 

The exact impact may vary depending on your overall credit history and other factors. It’s important to monitor your credit score regularly to ensure you’re not appearing as an unstable borrower to lenders.

Rate Shopping Exception

To protect consumers from being overly penalized for rate shopping, credit scoring models generally treat multiple inquiries for the same type of loan within a specific window as a single inquiry. 

This allows you to compare rates and terms from multiple lenders without significantly hurting your credit score, ultimately finding the best mortgage agreement for your personal situation.

Monitoring Hard Inquiries

It's essential to keep track of the hard inquiries on your credit report, especially when shopping for homes or considering other credit options. 

You can request a free credit report from each of the major credit bureaus once a year to review your credit history and check for any inaccuracies.

Timeframe for Inquiries

Hard inquiries typically remain on your credit report for about two years, but their impact on your credit score diminishes over time.

As they get older, their influence on your score lessens, and after the first year, they usually have a minimal impact.

Be Cautious with Credit Applications

While a single hard inquiry won't drastically affect your credit score, multiple inquiries in a short period can be a red flag to creditors and may suggest financial instability or a high-risk borrower. 

It's crucial to be selective and purposeful when applying for credit to avoid unnecessary hits to your credit score.

Final Thoughts

In summary, a hard inquiry is a credit check that occurs when you apply for a mortgage or other credit to buy a home. 

While a single inquiry has a minor impact on your credit score, it's essential to be mindful of making many inquiries in a short time frame, especially when rate shopping, to avoid potential negative effects on your creditworthiness.

Related: How to Get a Free Credit Score Report

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