Understanding credit inquiries
What is a credit inquiry?
A credit inquiry is a request to look into your credit file. This is a common due diligence step for creditors before they approve you for financial products like loans and credit cards. Credit reports give lenders a snapshot of how well you manage financial obligations like monthly loan payments.
Creditors can only run credit inquiries with your permission, and it's often a requirement in the application process for most loans and lines of credit.
Types of credit inquiries: hard vs. soft inquiries
Applying for a credit card can be an exciting experience, and that's especially true when you're staring down a new travel or rewards credit card that's offering a sign-up bonus. Unfortunately, we don't always get what we want in this life, and it's pretty common to get rejected for a credit card you want — even if your credit score is solid.
Fortunately, being rejected for a credit card won't lead to long-term damage to your credit score. The only potential impact on your score is the result of a hard inquiry on your credit report, which is added to your report each time you apply for a line of credit like a credit card or loan.
There are several key differences between a hard inquiry and a soft inquiry. Most notably, soft inquiries don't affect your credit score. Not only do they not affect your credit score, but creditors also can't see your soft inquiries. They're only visible on the credit reports you request.
How applying for a credit card affects your credit score
The impact of hard inquiries on your credit score
Most credit card issuers run hard credit inquiries during the application process, and that will temporarily hurt your score. According to credit-reporting agency Experian, hard inquiries on your credit report typically only ding your credit score for a few months, and this is despite the fact that inquiries can stay on your report for up to two years.
Why your score may drop when applying for a new card
A hard credit inquiry indicates that you need to borrow additional money. Future creditors will consider that you recently applied for new credit when assessing your application. That's because too many hard inquiries on your credit reports within a short length of time can warn lenders that you may be desperate to borrow money you may not be able to pay back.
Luckily, a single hard credit inquiry won't do much to your credit score. However, it tells lenders that you recently needed credit to fulfill a financial obligation. Credit inquiries don't impact your credit score for long since it's possible for borrowers to quickly repay their debt and work it into their monthly budgets.
Factors that influence the credit impact of card applications
Frequency of credit applications
If you frequently apply for new credit, each hard credit inquiry will carry more weight on your credit score. However, if you rarely apply for new credit, you won't lose many points during a hard credit check.
Length of credit history and existing credit lines
People who have lengthy credit histories have demonstrated that they can keep up with monthly payments. Credit inquiries don't carry as much weight if you have an extensive credit history. Any existing credit lines will not play a role in how your FICO score changes after a hard credit inquiry.
Tips to minimize credit score impact when applying for a credit card
Timing applications strategically
Submitting a bunch of credit card and loan applications within 14 days can minimize the impact on your credit score. That's because all applications sent within 14 days are treated as one hard credit inquiry.
Then, you can take a lengthy break from credit applications after a 14-day blitz. Sending new credit applications every month will have a more negative impact on your score than submitting all of the necessary applications within 14 days.
Monitoring credit utilization after approval
Your credit utilization ratio should receive a favorable boost after you open a new credit card. This ratio reflects the percentage of money you have borrowed against your available credit limit. A lower credit utilization ratio will improve your credit score. As long as you pay off your credit card balances and keep them low, you'll be in a good spot.
How long does a hard inquiry affect your credit score?
A hard credit inquiry affects your score for up to one year, but it stays on your credit report for up to two years. Luckily, hard credit inquiries don't make much of an impact to begin with, so you should regain ground soon enough.
Understanding the short-term and long-term effects of hard inquiries
In the short term, your credit score will go down slightly after a hard credit inquiry. It signals to creditors that you recently had to borrow money. Creditors may view too many credit applications as a red flag, possibly resulting in higher interest rates in the future.
However, a hard credit inquiry is beneficial in the long run. This hard credit check lets you open a new credit card, which instantly improves your credit utilization ratio. You also have the opportunity to boost your payment history by making on-time payments with your new account.
By the time the impact of your hard credit inquiry fades away, your score can be higher due to a lower credit utilization ratio, better payment history, and a more diversified credit mix.
FAQs about how a credit card rejection affects your credit
Does every credit card application hurt my credit score?
No, not every credit card application hurts your credit score. Some issuers do not run hard credit inquiries during the application process. It's common for issuers offering secured credit cards to skip hard credit inquiries and run soft credit checks instead.
How much does a hard inquiry lower my credit score?
A single hard inquiry might lower your credit score by about 5 to 10 points, but this varies based on your overall credit history and the number of inquiries you've had recently.
What is the difference between a hard and soft inquiry?
Hard inquiries give the creditor more information about your finances. They are common for loans and credit cards and will temporarily hurt your credit score. Soft credit inquiries give the creditor less information, but it's sufficient for some financial products. Soft credit inquiries do not impact your credit score.
How long does it take for my credit score to recover from a hard inquiry?
A hard inquiry will remain on your credit report for two years, but its impact on your credit score decreases over time, typically affecting your score for about 12 months.
Will applying for multiple credit cards in a short time hurt my credit more?
Applying for multiple credit cards within a 14-day window will not hurt your credit any more than a single application. However, your credit score will take a more meaningful hit if you apply for new credit cards every month.
Are there situations where applying for a credit card won't hurt my credit?
There are some situations where applying for a credit card won't hurt your credit. For example, some issuers run soft credit inquiries instead of hard credit inquiries. In those scenarios, you can apply for a credit card without hurting your credit score. However, most credit cards that only require soft pulls are secured credit cards.
