What Is a Hard Inquiry?
A hard inquiry is a type of credit information request that includes your full credit report and deducts points from your credit score. These types of inquiries are used by lenders and creditors in deciding whether to grant you credit or a loan, and they will usually cause a short-lived decrease in your credit score. A “hard pull” is another name for a hard inquiry.
- A hard inquiry is required before a lender will extend credit.
- Hard inquiries will cause a short-lived decrease in your credit score.
- Creditors also look at debt-to-income ratios and housing expense ratios when making credit decisions.
Understanding a Hard Inquiry
A hard inquiry requests your full credit history and credit score from a credit bureau. The lender or creditor making the request has the option to choose the bureau and credit report style that best fit its needs. Most lenders will rely on one or more of the top three credit bureaus: Experian, TransUnion, and Equifax. Some may use other bureaus that can provide deeper analysis or credit scoring based on alternative methodologies.
Any type of hard credit inquiry will be reported on your credit report, causing a small credit score decrease. Hard inquiries remain on your credit score for two years. If you have many hard inquiries in a short time period, you will see a more dramatic decrease in your credit score and be considered a higher risk to lenders.
Unlike hard inquiries, soft credit inquiries do not affect your credit score, because they don’t provide a creditor with your full credit report.
There is another type of credit inquiry that can be requested: a soft inquiry. It follows slightly different procedures and includes less information than a hard inquiry. Soft inquiries are not reported on your credit report and have no effect on your credit score. Examples of soft inquiries include free credit reports that you request yourself, prequalification approvals from lenders, loan information requests from credit marketing services, and most background checks made by landlords and employers.
Some creditors place greater emphasis on credit scores than others, with qualifying ratios also serving as a component in credit underwriting. Generally, your credit report is only half of the information needed for an underwriting approval. Creditors will also analyze your debt-to-income ratio, which is the primary qualifying ratio for most loans.
Creditors have customized technology and underwriting processes that generate loan approvals based on both credit reports and qualifying ratios. Personal loans and credit cards usually do not have a stated minimum credit score, though mortgage lenders generally do set minimums.
As for qualifying ratios, most creditors follow what is known as the “28/36 rule.” For standard loans, for instance, a creditor will usually require a debt-to-income ratio of 36% or less—your household spends 36% or less of your monthly gross income on debt repayment. For mortgage loans, creditors will also analyze your housing expense ratio, which must typically be approximately 28% or less for loan approval.