If you’ve applied for a small business loan, taken out a mortgage, or signed up for a business credit card, then you’ve heard the pesky term “credit check” before.
A credit check—or credit inquiry—helps lenders and financial entities decide whether they’ll lend money to you or your business. And in almost all cases, undergoing a credit inquiry is a necessary step to getting approval for your rental home, business loan, credit card, and so on.
But those credit checks aren’t just a one-and-done kind of thing—credit inquiries stay on your credit report even after you’ve secured approval for your credit application.
Just how long do credit inquiries stay on your credit report? Here’s what you need to know.
Your quick answer is this:
Credit inquiries stay on your credit report for a maximum of 2 years—but they’ll only impact your FICO credit score for a maximum of 12 months.
But the answer is a little more complicated than that. To fully get into it, we first need to cover the different types of credit inquiries.
In the world of credit checks, there are soft credit pulls and hard credit pulls.
As the name suggests, a soft credit check isn’t as big of a deal.
In fact, when a lender or financial institution performs a soft check on your credit, it has no impact on your credit score. Someone could be soft-pulling your credit report right now, and you might not even know it.
Soft credit pulls happen pretty often.
Most credit card issuers perform soft pulls when you apply for a credit card. Or, an employer might even perform a soft credit check before hiring you for a job to check on your creditworthiness as an indication of your responsibility. And any time you check your own credit score, that’s a soft credit pull.
Because soft credit pulls don’t affect your credit score, you don’t have to worry about them staying on your credit report.
Hard credit pulls, on the other hand, are what we want to pay attention to when we’re thinking about how long credit inquiries stay on your credit report.
A hard credit check is done for the same reason as a soft credit check—lenders or banks want to review your creditworthiness to see if lending to you is a good idea.
But hard credit inquiries are usually done when you’re seriously applying for credit—like taking out a personal loan, a business loan, or a line of credit. You can almost always expect a hard credit pull to happen when you’ve signed, sealed, and delivered an application for credit.
When you let a bank or lender do a hard credit check on your credit report, what does that mean for that all-important, three-digit number—a.k.a your credit score?
And how long do hard credit inquiries stay on your credit report down the line?
Well, here’s what you need to know:
When a lender hard pulls your credit, your credit score will take a small hit regardless of whether you’ve been approved or declined. According to FICO, credit inquiries tend to correlate with higher risk borrowers—and your credit score will reflect that correlation.
Why do credit inquiries correlate with riskier borrowers?
It’s hard to pay off debt. And as you open more and more new credit accounts (and presumably accumulate debt on those accounts), it becomes less and less likely that you’ll be able to pay off each and every one of your existing credit accounts. And because a credit inquiry comes along with each new credit account you open, credit inquiries are the signal that indicate you’re opening a lot of new accounts.
Back to the issue credit inquiries staying on your credit report.
All in, don’t worry—credit inquiries don’t impact your credit score that much.
It all comes down to how FICO calculates your credit score. In the grand scheme of things, credit inquiries make up a small fraction of your credit score. When you break down your credit score meaning, you’ll find that a majority of your credit score depends on your payment history and credit utilization. Your length of credit history (15% of your score), mix of credit (10% of your score), and new credit (10% of your score)—where credit inquiries show up on your credit report—are not as important factors in your score. Payment history and amounts owed are the most important factors of your credit report.
So, if there’s a credit inquiry that’s on your credit report, don’t panic—it doesn’t have a huge impact on your credit score. According to Tina Hay, CEO of Napkin Finance, “A hard credit pull can take off several points from your credit score, but it’s typically a 1 to 5 point impact.”
In general, a hard credit inquiry could show up on your credit report for as long as 24 months, but it can only actually affect your credit score for a maximum of 12 months.
But there are a few intricacies that you should know about when it comes to credit inquiries and your credit report.
While credit inquiries only stay on your credit report for a maximum of 2 years—actively impacting your score for no more than 12 months—you should know that the FICO algorithm considers different credit inquiries in different ways.
According to Hay, “Different people’s scores will be affected differently by a hard pull—some may not lose any points, while others may lose several for a single new inquiry.”
It all comes down to what your credit history is and the circumstances of your credit inquiry.
Hay says that, “FICO considers the following factors: the purpose of the inquiry, the number of hard inquiries on your account, the number of recent inquiries, the time elapsed since your last credit inquiry, and so on.”
You see, the effect a credit inquiry has on your credit score isn’t black and white. It really depends on how FICO regards your credit inquiry.
For instance, say you’ve been shopping around to find the best rate on a business loan, auto loan, or student loan. Odds are, you’ve undergone a couple of hard credit pulls in order to lay out all your offers on the table.
The FICO algorithm is designed to ignore multiple credit inquiries made within a certain time frame to allow people to shop around for the best rates—usually 30 days prior to credit scoring. If you’ve contacted 4 different lenders all with the same purpose, your credit report would only indicate one credit inquiry.
The FICO algorithm will also weigh how strongly credit inquiries affect your credit score by looking at your overall credit history. If you only have a few accounts or a short credit history, multiple credit inquiries will hurt your score more than they would for a strong credit profile.
These examples just go to show that the FICO algorithm isn’t cut-and-dry when it comes to credit inquiries. And before you panic about how long credit inquiries stay on your credit report, you should think through whether those credit inquiries are even impacting your score.
As a responsible consumer and small business owner, you should be requesting a free credit report to review at least once a year.
Not only can you use the information on your credit report to make sure you’re practicing behaviors that will help your credit score (and not hurt it), you should also be looking at your credit report for errors.
In 2012, the Federal Trade Commission found that one in five credit reports contained errors in them—and there’s no indication that this statistic has gotten any better.
There are a variety of credit report errors that could show up on your credit report. One of those is a false hard credit inquiry.
On your credit report, you’ll find a section at the end of the report called “Credit Inquiries.”
Check the list of creditors or issuers that have done a hard credit pull on your report. Hard credit pulls must be authorized by you. If there are items listed in this section that you never authorized, you can dispute these items and request to remove them.
You can first tackle the dispute process on your own by contacting the creditor that performed an unauthorized credit inquiry. State that you believe the hard credit pull to be unauthorized, and request that the information be removed from your records and updated with each credit bureau. (Make sure to keep a copy of your letter to the creditor, too.)
You should also be aware that unauthorized credit inquiries could be an indicator that you have fraud on your account. If you see a couple inquiries that don’t look right, check the other information on your credit report for evidence of fraud.
And finally, it’s important to reiterate that credit inquiries don’t stay on your credit report for as long as other pieces of negative information do, and they don’t hurt your score as much, either. (Whereas other negative credit information can remain on your report for up to 7 years, credit inquiries stay on your credit report for a maximum of 2.)
If you have a variety of negative information on your credit report, it’s best to tackle the higher impact items first.
In the worst case, a hard credit inquiry will affect your credit report for 12 months. But the inquiry’s impact—if it even has one—will mostly affect your score for 6 months after the pull occurred.
So unless you’re planning on getting a new mortgage or a large amount of business financing in the next 6 to 12 months, you have no real need to worry about your credit inquiries if you have a strong credit rating in the first place.
Your best bet is to wait out the credit inquiry and practice good borrowing habits to keep your credit score strong in the meantime.
Hay reminds us that, “The better your credit history is, the less of an impact a new inquiry should have.” So make sure to keep up your borrowing best practices while you wait out a credit inquiry.
And don’t worry, small business owner, that credit inquiry will be completely erased from your credit report in 2 years at a maximum!