When applying for a line of credit or a new service agreement, credit and service providers assess your credit report. This is to accurately determine whether you can afford and manage the new repayment of that product. Some of these enquiries may leave a mark on your credit report depending on what information is requested and required. 

Why Are Enquiries Left On A Credit Report?

According to ClearScore.com, a credit enquiry is a request submitted by the lenders or creditors for your credit information. It usually happens when you apply for a loan, a line of credit or any other type of credit that needs a lender to evaluate your creditworthiness. 

Hard enquiries are tracked and recorded by lenders and service providers. These enquiries are recorded in order for lenders and service providers to use to determine what type of loans and credit the consumer is applying for or has tried applying for. For many financial services, the number of hard enquiries made by the consumer will impact their overall risk. 

Lenders and financial services providers use a variety of factors to determine the consumers overall creditworthiness. They are among the following:

1. Credit Score
2. Loan Balances
3. Debt-to-income Ratio
4. Payment Behaviour and History
5. Enquiry type and volume
   

What Is The Difference Between Hard And Soft Inquiries?

A hard enquiry is triggered when a consumer seeks approval for a new credit line or various financial services, such as personal loans, mortgages, or car financing. Cellphone contracts are also included in hard enquries. In contrast, a soft enquiry represents a form of credit assessment that takes place when a consumer applies for rental agreements, requests insurance quotes, undergoes employment verification, or seeks credit prequalification. Soft inquiries are used to obtain specific information, such as current credit balances and credit scores.

Can Credit Report Enquiries Negatively Impact Your Credit Score? 

Soft inquiries won’t leave any imprint on your credit report or influence your credit score. They are solely used to retrieve specific information. Moveover, hard inquiries can leave a noticeable trace on your credit report and potentially affect your credit score, particularly if a consumer makes multiple inquiries within a short timeframe. 

Lenders often scrutinise these inquiries to understand the consumer’s recent credit-seeking activity. A high number of hard inquiries in a short period can begin to impact your credit score. This signals to lenders that you may be in urgent need of credit, potentially raising concerns about your financial stability. 

How Large Of An Impact Can Enquiries Have?

Having multiple inquiries on your credit report can have an impact, but the effect may not be as severe as one might expect. Inquiries only account for 10% of your overall credit score. If a consumer has made several inquiries within a relatively short time frame, their credit score may experience a decline. 

It’s essential to understand that while multiple inquiries can have a negative influence, other factors, such as payment history and credit utilisation, play more significant roles in determining your overall credit score as they have a 35% weighting on your score. According to ClearScore.com, multiple credit card/personal loans applications over a short period of time can easily turn your good score into a bad one quickly. Multiple enquiries, in addition to having a negative impact, may influence rejections too.

Therefore, before applying for a line of credit or service agreement, it is important for the consumer to understand the lender’s terms and eligibility criteria. This will reduce the number of inquiries and rejections significantly. Additionally, each enquiry made by the consumer will remain on their credit report for a minimum period of two years. 

If You Are Worried About Your Credit Score, Speak To Us

As a registered debt counsellor with the National Credit Regulator, we can provide you with a free financial assessment. Moreover, we can provide you with a copy of your credit report and offer free advice on how to improve your credit score, and the various formal debt solutions available to consumers.