Removing hard credit inquiries from your credit report requires that they meet a certain set of criteria. If you have inquiries eligible for removal, it’s time to brush up your writing chops – and get ready to send a letter.
If you thought bad credit was only about non-payments, then think again. There are a number of factors that contribute to credit the score formula to derive the number that lenders use in decisions to extend credit. Although small in comparison to other factors, inquiries can hinder you from obtaining the credit or finance rate that you seek.
You should come to understand what inquiries are, how they are initiated, what impact they have on your credit score – all in addition to how to remove them. You will be one step closer to understanding how to better equip yourself financially.
What Are Inquiries?
Have you ever applied for credit? The following are some examples of activities that usually warrant an inquiry to your credit report:
- Purchasing or leasing a new car
- A new house
- Lease on an apartment
- Contract cellular
- Store credit
- Personal loan
- Purchasing insurance
- Applying for a job where a credit check is required
There are some activities that you may be familiar with and others you may not, but all result in an inquiry added to your credit report. The entity requesting information on your behalf will usually provide you with the results, as mandated by law.
The results can be favorable or adverse. If they are adverse, the entity has to provide you with notice as to why they have either denied you credit or only approved credit with a higher finance charge (or deposit if you are looking to rent).
Sometimes, your creditor will require a cosigner to apply, as well. This means that you are a higher credit risk and the company wants to ensure they will receive payment for the goods or service.
The solution to safeguarding that you obtain the best possible rate is to always look at your credit report and keep it in tip-top shape. This includes monitoring your inquiries section, which is located at the bottom of the report.
Types of Inquiries
There are two types of inquiries, hard and soft. The difference in the two lies in who requests information and the reason behind the request.
Hard pulls or inquiries, occur when you, the consumer applies for new credit. You’d have to give express consent for a creditor to view information in your credit report.
Hard pulls will verify your information, your credit score, and items on your credit report. This information is needed for the creditor to decide whether to extend new credit or not.
Soft pulls are generally done without your express consent. Insurance companies or credit card companies make these inquiries when they are pre-screening you for eligibility of offers.
These inquiries can also occur if you already have an open line of credit with a company, or if you apply for a position where the salary is over $70,000.
Applying for Credit – Hard Inquiries
When applying for new credit you will generally give your name, address, phone number and social security number. These are needed to accurately identify the correct credit record to pull.
Your credit application will require your signature, giving the lender or a financial consultant permission to access your credit file. You may be familiar with this approach if you have ever bought a car.
You walk into the dealership and they will ask you to fill out a credit application before they allow you to test drive. You can be subject to multiple hard inquiries using this approach, as the dealership will shop around for the best deal for you. Events like this results in a hard pull.
After I bought my car from a national dealership, I viewed my credit report and saw eight entries. I immediately panicked because I was not aware that the dealer’s finance personnel petitioned that number of lenders.
After some research, I found that the FICO scoring models treated multiple inquiries for one type of loan as one inquiry, indicating that you were shopping around for the best rates. This method prevents your score from taking a complete nosedive.
Hard inquiries impact your score for about a year, but generally fall off your report within 2 years.
Credit Reviews of Report – Soft Inquiries
The other type of inquiry is a little different and do not impact your score. Soft inquiries are those initiated by you, the owner of the report. There are other entities that can also contribute to soft inquiry reporting.
Whenever you have a credit card or store card, your company will periodically pull your report to check on your credit standing. They do this for various reasons. One reason is to see if you are eligible for a credit limit increase without you having to request one.
Just recently, I received a credit limit increase that I did not request, but was pleasantly surprised. Although I do not max out my card, I find that increasing my available credit and maintaining a low utilization helps to quickly improve my credit score.
Another reason your card company will check your score is to see if you are eligible for other products. For instance, if you only have a credit card with a lender but they also offer mortgage and car loans, then you may receive emails or direct mailers stating your eligibility.
Pre-screening for Marketing
Pre-screened offers from other companies are made possible by soft inquiries to your report. According to the Federal Trade Commission, creditors or insurers will ask the CRA (credit reporting agencies) for a list of people with a certain score to market to.
Although this may be a nuisance to some, it can be very beneficial to others, as exclusive offers may only be available through pre-screening. I usually gauge my credit based on the types of offers and the companies that send them. I went from pre-screened offers from unknown creditors to well-known creditors with higher credit limits and airline reward programs.
When you have various kinds of insurance, your provider may periodically check your report to offer more product or reduce your rates at renewal. This results in a soft inquiry on your report.
Only you can see the soft inquiries and the date of the inquiries. Soft inquiries generally fall off within a year.
How Credit Scores are Affected by Hard Inquiries
When a hard inquiry is reported, be aware that you may see a minor decrease in your credit score. This decrease will last for about a year.
If you are in the market for a car or house and need to shop around for favorable loan terms, you should focus on keeping your inquiries within a 30-day time-frame. All inquiries during this time-frame will count as one, having minimal impact on your score.
You may see a 1 to 5-point reduction in your score. However, continuing to pay on time and maintaining your good credit will result in a bad credit score increasing into the ‘good’ territory over time.
Monitoring your credit utilization and refraining from obtaining new credit are other tactics to mitigate the affects of hard inquiries on your credit score.
I have found the point reduction to be minute in comparison to the decline in my score due to an increase in my credit card balance. With the inquiry requesting information on a car refinance, I saw a drop of two points. With the credit card balance increase, there was a decrease of twelve points on my report.
One rule of thumb when it comes to your credit report is to check everything for accuracy and notate any discrepancies. This includes inquiries, as creditors sometimes view the number of inquiries in their decision to lend. Having an excessive amount of inquiries can also lower your score.
Because inquiries are factored in your financing potential, you should ensure that the information is yours. You can start by verifying that all hard inquiries were initiated by you, either by a signed application or an online form.
If you recognize that you have an inquiry from a firm you do not recognize, you can opt to have the inquiry removed. If you are not sure if you should remove the inquiry or understand how it impacts your credit score, you may seek the help of a credit repair company.
Removing Inquiries from Your Report
Hard inquiries are basically the only inquiries to remove, as they can pose as negatives in the eye of a creditor.
One method of removal is to dispute by certified letter. Your letter should be addressed to each of the credit bureaus.
The contents of your credit inquiry removal letter should include the reason you are writing (to dispute an inquiry), the company that requested your information, the reason you are disputing (usually due to unrecognized or unauthorized activity), and your request to have the item removed.
You should also include your credit report with the inquiries highlighted to better indicate with items you are wanting investigated and/or removed. If there are multiple inquiries, it may be suitable to number or letter them, making it better for referencing in your letter.
It is typically not of the greatest importance to remove inquiries if you have good credit, but if you have poor or marginal credit, you should probably seek removal. Removal could mean the 5 to 10-point difference in financing at 10.99% or 15.99%, hypothetically.
The alternative to writing a formal removal letter would be to allow the inquiries to fall off on their own. You can also opt to avoid applying for credit until the inquiries fall off, letting the natural process take its course.
When it comes to inquiries, even though they may be a small piece of the credit score pie, they can hurt you financially. They sit on your report, displaying your credit application history, depending on the initiator of the request to view your credit.
Your inquiries give insight into how often someone is taking a peak to offer you an enticing opportunity for a new line of credit or how often you are requesting additional credit. If you have a multitude of inquiries, you can appear as a credit risk to potential creditors; and if you did not authorize those inquiries you should act against them.
The goal is to remove the inquiries by writing a letter to the credit agencies and/or the creditor on record. If you are not familiar with this process or not a great formal letter writer, you can choose to hire a credit repair agency to assist with the inquiry removals, along with the removal of other negative items that can weigh down your credit score.