Think Twice, Apply Once: Protect Your Credit Score, Preserve Your Peace Of Mind.

Your credit score is a crucial component of your financial wellbeing and can significantly impact your ability to obtain credit and favourable credit terms. It’s vital to have a clear understanding of how credit inquiries affect your credit score, whether you’re applying for a loan, credit card, or line of credit.

By proactively educating yourself on the credit application process, you can take steps to safeguard your credit score and increase your chances of obtaining the credit you need. Therefore, it’s prudent to carefully consider your options and take appropriate measures to preserve your financial stability before applying for credit.

Understanding Credit Inquiries: Types and Impact on Credit Score

Let’s define what a credit inquiry is, when you apply for credit, whether it’s a credit card, loan, or line of credit, the lender will typically request your credit report from one or more of the major credit bureaus This request is considered a “credit inquiry” and is recorded on your credit report. 

The Difference Between Soft and Hard Inquiries

There are two types of credit inquiries: “soft” inquiries and “hard” inquiries. Soft inquiries are usually initiated by you or a company you already have a relationship with, such as a credit card company checking your credit to see if you qualify for a pre-approved offer.

 Soft inquiries do not affect your credit score. Hard inquiries, on the other hand, are initiated by a lender or creditor when you apply for credit. 

How Multiple Hard Inquiries Affect Your Credit Score

Hard inquiries can have a negative impact on your credit score, especially if you have multiple in a short period of time. This is due to each hard inquiry representing a potential new line of credit, and lenders may view this as a sign that you are taking on too much debt or experiencing financial difficulty. Each hard inquiry can lower your credit score by a few points, and if you have multiple inquiries within a short period, the impact can be more significant.

Additionally, having too many hard inquiries on your credit report can signal to lenders that you may be a high-risk borrower. This can make it harder to obtain working capital or other types of credit, as lenders may be hesitant to approve your application.

Tips to Protect Your Credit Score from Negative Impact of Multiple Inquiries

So, what can you do to avoid the negative impact of multiple credit inquiries?

Firstly, try to limit your credit applications to those that are truly necessary. If you’re shopping around for the best loan or credit card, try to do so within a short period of time (usually 14-30 days) so that multiple inquiries are counted as a single inquiry. This is because credit scoring models are designed to recognise that consumers may need to shop around for the best deal, and they typically only count multiple inquiries made within a short period as a single inquiry.

Finally, make sure you monitor your credit report regularly to ensure that all inquiries are accurate and up-to-date. If you notice any unauthorised inquiries or errors on your credit report, you should dispute them with the credit bureaus to have them removed.

Conclusion

Multiple credit inquiries can have a negative impact on your credit score and limit your chances of obtaining working capital. By limiting your credit applications and monitoring your credit report, you can help protect your credit score and increase your chances of being approved for the credit you need.