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How Many Hard Inquiries Is Too Many?

When you apply for a loan or bank card, the lender will request a copy of your credit report to evaluate your risk. By applying for the loan in the first place, you are authorizing the lender to receive a copy of your credit report from one of the three major credit bureaus. Each time this happens, it’s known as a credit inquiry and can affect your credit score.

Many people shop around before settling on a lender, which means that you can have multiple inquiries on your credit report in a short period. This leads many borrowers to ask, “How many inquiries is too many?”

At some point, too many inquiries can impact your chances of approval, but this also depends on the type of inquiry and the period that these inquiries have spanned. For more information about the impact of multiple credit inquiries, check out our in-depth article below.

How credit inquiries affect your credit score

Multiple credit inquiries in a short period of time can hurt your chance of approval in two ways: They lower your score and may show lenders that you are hasty with credit decisions. Credit inquiries will stay on your report for two years, but your FICO score will only take credit inquiries from the past 12 months into consideration. Most lenders will set a maximum credit inquiry limit that will deny you a loan if you surpass it.

Not all credit inquiries are equal: There are hard inquiries and soft inquiries. While both of these are used to gauge your score and risk level, they are very different when it comes to the impact on your score.

Hard credit inquiry

A hard inquiry is when a lender reviews your credit report as part of their decision-making process. This type of inquiry will affect your credit score and will appear on your credit report. Some examples of when a hard inquiry might appear on your credit report are when you apply for financing to buy a car or open a new credit card based on a preapproved offer.

Soft credit inquiry

A soft inquiry is when an entity checks your credit score as part of a process that isn’t linked to a specific application. This can include an employer pulling a credit report as part of an employee screening process, a credit card company preapproving you or checking your own credit score. Because this type of inquiry doesn’t indicate an application for credit, it will not affect your credit score.

How many hard credit inquiries is too many?

The impact that multiple inquiries will have on your credit will vary based on your unique credit history. Ultimately, it’s up to the lender to decide how many inquiries is too many.

Each lender typically has a limit of how many inquiries are acceptable. After that, they will not approve you, no matter what your credit score is. For many lenders, six inquiries are too many to be approved for a loan or bank card.

Even if you have multiple hard inquiries on your report in a short period, you may not see negative consequences if you’re shopping for a specific type of loan. If you are shopping for the best rate for a single type of credit account, such as a car loan or a mortgage, these will typically only count as a single inquiry. This means that the impact on your credit score will be minimal.

If you are trying to open multiple credit accounts in a short period of time, this will register as multiple inquiries and jeopardize your chances of approval later on. This indicates that you make decisions about your credit hastily, which indicates a higher risk.

Things to remember when shopping for rates

Check your free credit report

Understanding your credit report is an important part of financial wellness. You should understand what each entry on your credit report means and how it contributes to your overall credit score.

You are entitled to a free credit report from the three major credit bureaus. Before you shop for rates, be sure to look over your credit report to understand what’s already on there. You should be able to see any credit inquiries from the past two years as well as any existing lines of credit.

Pay attention to the status of accounts

As you look over your credit report, pay special attention to the status of each account. The “status of accounts” section tells you whether an account is open or paid and other information about the account’s status.

Each account on your credit report will include a status, some of which include:

Paid as agreed
Paid/closed never late
Account paid in full for less than full balance or settled
60/120 days past due

If your report lists an account as closed, it will also include details about how you handled the account when it was open. In essence, it will include payment history and how long it was open.

Lenders look carefully at the accounts listed on your credit report because it gives them an idea of how you will handle your credit account with them. If you have accounts that have gone to collections or are past due, this can influence their decision to grant you a loan.

Practice good financial habits

A good credit score starts with good financial habits. This will show lenders that you are a responsible borrower and can handle an additional credit account. If you want to show lenders that you are a responsible borrower, commit to the following:

Paying bills on time and in full
Keeping track of balances
Monitoring your credit report
Monitoring your credit score

Final thoughts

Multiple credit inquiries aren’t always a bad thing. Depending on whether it’s a hard or soft inquiry, it may not affect your score much, if at all. It is a good idea, however, to keep track of how many credit inquiries you’ve had over the past two years to reduce the risk of your application for a loan or bank card being rejected.

If you are shopping for a specific line of credit, do all of your rate shopping in a condensed period. Experts suggest that doing your rate shopping in 14 days or less is the best way to minimize the impact on your score.

It’s OK to apply for lines of credit when needed. What lenders don’t like to see is when you apply for all kinds of credit at once. Sit down and make a game plan before you go rate shopping, and you’re sure to walk away with the best rate and minimal impact on your score.

Update: This article has been updated to reflect current credit score information.

Disclaimer: This story was originally published on July 14, 2020, on BetterCreditBlog.org. For more information on credit inquiries please visit: https://money.com/hard-soft-check-credit-report/.