We recently talked in this column about removing negative items from your credit report. I told you then that it is generally not possible to remove accurate and timely negative information from your report.
But does that include difficult investigations? While not technically a negative (you haven’t done anything wrong), they indicate potential increased risk and may count against you. Let’s take a closer look at the requests and see how they affect both your credit reports and your credit score.
What is a hard investigation?
First, let’s define “investigation” and how it is used in credit reports. There are two types of queries, sometimes called “pulls”: soft and hard.
A soft demand or pull occurs when you check your credit on your own. Pre-approved credit offers are also light draws because you are only pre-approved for the offer, not for the credit. A soft pull will appear on your credit report, but will only be visible to you. Most importantly, an indirect request has no effect on your credit score because no additional credit has been requested or offered.
However, a hard inquiry or pull is a whole different animal. The difference between the two is the intent of the survey. Kind of like kissing your sister or kissing your sweetheart! Both are kisses, but the intention is different.
Large drawdowns happen every time you apply for credit and they will affect your credit whether or not you are approved. Plus, inquiries will show up on your credit report and be visible to anyone who checks your credit. They will have a negative impact on your score, but the impact is relatively minor (around five points for a survey, according to FICO).
How long is left on your credit report?
The inquiries stay on your credit reports for two years. However, the effect of the survey is only felt for a maximum of one year. And usually the impact wore off after a few months. The impact is usually greater for someone with little data on their credit report than for someone with an average or extensive history of credit use.
How does a thorough investigation affect your credit score?
Credit scoring is about your risk of default on a loan and the calculation of the risk taken by a lender to grant you credit. Serious inquiries send a signal that you are looking to take on new credit obligations.
A survey, as stated above, will only increase your score by about five points. However, if you do something like apply for each credit card, you will find that your score will be more significantly affected. This is because when you apply for new credit, you are changing the status quo.
Questions like why do you want or need more credit, can you handle additional debt, or what has changed in your life that you need new credit for all create uncertainty. Adding new accounts changes the overall picture and your score will reflect new uncertainty until you’ve had the accounts long enough to show you can handle them. Your credit report is the indicator of how well you are handling the new credit that has been granted to you. If you manage it well, your report will reflect it and your score will reflect the reduced risk.
Is it possible to delete a hard request?
I started this column by saying that it is usually not possible to remove accurate and timely information from your report. This is also true for difficult surveys. If you have applied for credit, again, whether or not you have been approved, these requests will show up on your credit report and affect your credit score.
However, there is one big exception to this: identity theft. In the event of identity theft, where someone else has requested credit on your behalf without your knowledge or approval, those requests can and should be removed.
This can be a detailed process, but the Federal Trade Commission has listed the necessary steps here. As with all disputes, keep good records and in the event of identity theft, be sure to get a police report documenting the theft.
How To Minimize The Damage To Your Credit Score Through Serious Investigations
As I mentioned earlier, you should avoid making multiple inquiries in a short period of time unless you are shopping for a student loan, mortgage, or car loan. Credit scoring algorithms take into account that people tend to rate purchases for those purchases. In these cases, as long as you keep the requests within a certain amount of time, they will only count as one when calculating your score.
The FICO elves examine your credit report for rate requests. If they find any, they’ll treat requests that fall into a typical buying window as one request. Older versions of the FICO score use a 14-day purchase period. Newer versions use a 45-day purchase period.
Each lender can use a different version of the FICO scoring formula to calculate your FICO scores. VantageScore 3.0 counts all auto or mortgage loan requests made within 14 days as one request on your credit report. They will all appear on your credit report, but they will be grouped together for the purpose of calculating your score.
As with anything related to credit score, there are proven methods to minimize damage when your score has been affected in any way:
- First and foremost, pay your bills, all your bills, on time, every time.
- Keep an eye on your credit card usage and try to keep your balances below 25% of your total credit limit (s). Only apply for credit when you need it, and only when you are fairly certain you will be accepted.
- Monitor your credit reports and report anything that is suspicious or that you don’t recognize.
- Do not close accounts for no good reason; Even if a credit card is paid off, keeping it open can help by increasing your available credit (and thereby lowering your credit utilization rate) and lengthening your credit history.
At the end of the line
Finally, don’t let the hard knocks overwhelm you too much. Keep in mind that these inquiries are part of normal credit use and will naturally disappear from your credit report after two years with no action required on your part.
Have a question about Steve’s credit rating? Drop him a line on the Ask Bankrate Experts page!