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Does Applying For Credit Affect Your Credit Score?

Last updated Nov 1, 2023

You may have heard that applying for credit can affect your credit score, but you might not know exactly what the effects will be. Does applying for a credit card hurt your credit? What about applying for other types of loans? How big is the impact, and how long does it last?

Whether you’re rebuilding your credit after some slip-ups or trying to take your score from good to great, it’s helpful to understand what applying for credit cards and loans can do to your score. Here’s everything you need to know.

does applying for credit affect credit score

Applying for Credit: How it Works

When you apply for a new loan or credit card, lenders evaluate various pieces of information as they decide whether they’re willing to loan you money and under what terms. A key piece of information is your credit report, which includes items like your loan payment history and credit card balances.

To access your credit report, lenders must submit an inquiry, which is then reflected on your credit report (we’ll talk more about inquiries in a minute).

Lenders also evaluate your credit score. A credit score is a three-digit number based on the information in your credit report. Multiple companies have models that calculate credit scores. VantageScore and FICO, for example, both provide scores that operate on a scale from 300 to 850.

While credit scoring models rely most heavily on your payment history and credit utilization ratio, about 10 percent of your score is determined by how much new credit you have, including the number of recent inquiries on your credit report.1

Types of Credit Inquiries

Credit reporting bureaus differentiate between two types of inquiries: hard and soft.

  • Hard inquiries occur when a financial institution—like a bank, credit card company or mortgage lender—accesses your credit report because you are applying for credit. Hard inquiries are typically only made with your permission and are reflected in your credit score.
  • Soft inquiries occur when someone accesses your credit report—but not because you are applying for new credit. Requesting a copy of your own credit report generates a soft inquiry. Employers or landlords might also submit soft inquiries as part of their background checks. Additionally, a lender may submit a soft inquiry to provide you with personalized loan options and/or pre-approval offers. Soft inquiries can be made without your permission and are not reflected in your credit score.

At Upgrade, when you check your rate for a personal loan we perform a soft inquiry on your credit report, which does not impact your credit score. If you receive a loan through Upgrade, we will perform a hard inquiry, which may impact your credit score. A new borrower may see a small drop in their credit score when they receive a new loan, but the score typically climbs back up with time and on-time payments.

Hard Inquiry: How It Impacts Your Credit Score

Each time you take on more debt, the risk that you won’t be able to make all your payments increases. It has been shown that borrowers with six or more reported inquiries are up to eight times more likely to declare bankruptcy than borrowers with zero inquiries.2 As such, your credit score will generally decrease when a hard inquiry is submitted because it indicates you are applying for new credit.

The amount of points you’ll lose per hard inquiry isn’t set in stone; it depends on your personal credit history. For most borrowers, each hard inquiry will take less than five points off their FICO scores.2

The record of a hard inquiry stays on your credit report for 24 months, but its impact on your credit score lessens with each passing month and is relatively short-lived. In fact, your credit score will usually return to its pre-inquiry level within about six months.

It’s important to note that some lenders choose not to extend credit to borrowers with several recent inquiries on their report—even if their credit score looks ok. These lenders might consider a pattern of credit-seeking to be a sign of financial hardship or a higher-risk borrower.

Rate Shopping

What if you’re trying to find the best interest rate by applying for a loan with several different lenders? Will the flurry of hard inquiries always seriously damage your score? Generally, not if your applications are submitted within a short timeframe.

When it comes to mortgages, auto loans and student loans, credit scoring companies know that it’s smart to shop around for the best rate—so they treat multiple inquiries for the same loan during a certain window of time as just one hard inquiry. The window varies from 14 to 45 days, depending on the credit scoring company.

Applying for multiple credit cards, however, is another story. If a credit scoring company sees that you applied for a mortgage at five different lenders, they can confidently assume you’re only shopping for one mortgage—but they can’t make the same assumption about five different credit card applications. Loading up on credit cards is seen as risky behavior, which will hurt your credit score.

How to Protect Your Credit Score When Applying for Credit

There’s no need to be afraid of applying for credit. Follow these strategies to keep your score in top shape:

  • Watch out for surprising hard inquiries. Obviously applying for a new car loan will generate a hard inquiry—but other, less apparent actions can also result in hard inquiries. For example, lenders generally submit hard inquiries when you request a credit limit increase, and rental car companies may also submit a hard inquiry if you pay with a debit card.
  • Think ahead. When you’re applying for a major loan, every point on your credit score could make a meaningful difference in the amount of interest you’ll pay. Consider holding off on other credit applications in the preceding months to protect your score from unnecessary hard inquiries.
  • Stay within the window. Make sure all rate shopping is completed within a short timeframe.
  • Take advantage of soft inquiries. Many online lenders allow you to check your rates or see estimated loan offers with just a soft inquiry, enabling you to gather information without hurting your credit score. Be sure you know which type of inquiry will be submitted before providing any personal details.
  • Monitor your credit report. Use Upgrade’s Credit Health tool to regularly watch your credit profile, and periodically check your credit report—available from each major reporting agency once a year for free. If you spot an unauthorized hard inquiry, you can file a dispute with the reporting bureau.

Want to learn more about becoming a credit score superstar? Check out Credit Health Insights for tips and tricks to get a great score.

  1. New Credit
  2. Hard Inquiries

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