Hard inquiry warning not required

The impact of that inquiry can range from slightly harmful to positive

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Question Dear Speaking of Credit,
Are lenders supposed to warn you before you apply that a hard inquiry will hurt your credit score if denied? Do inquiries hurt your score differently when denied credit than approved? – Tommy

Answer Dear Tommy,
Some lenders may warn applicants of the potential for credit score damage from a hard inquiry caused by a credit pull. But no law requires them to do so. The harm from a hard inquiry happens at application. It does not matter whether your application is approved or denied.

Those parts of your question were easy to answer. But after that, it gets complicated. The process of applying for credit can ultimately hurt, or not hurt, anyone’s credit score. That will depend on the type of credit sought, and how that new credit is used.

What kind of damage can inquiries cause when denied credit? Not much, compared to a late payment or a high card balance. A single inquiry is likely to take only about five points off of a score.

The damage will occur only at the bureau or bureaus where the lender checked your credit.

A single application to a single credit card issuer leaves a single inquiry on your credit report.  A mortgage application requires credit checks at all three credit bureaus – Equifax, Experian and TransUnion – and leaves an inquiry on the credit reports of each.

Once on a credit report, an inquiry will continue to be included in scores from that bureau for the following year.

Mortgages and auto lending  inquiries have special rules that allow for typical loan-shopping behavior. They let these borrowers shop around with several lenders, but end up with just one credit inquiry. The rules are:

  • A 30-day “buffer period,” during which inquiries are ignored by the score for the first 30 days.
  • The “inquiry deduplication” feature. Think of it as a window of time within which multiple inquiries are considered to be one. Depending on the scoring model used, the window can be 14 to 45 days.

Let’s compare the score impacts of denied applicants to those approved. There can be some differences, including one that might come as a surprise.

The surprise is that denied consumers often come away from an application with less score damage than those who have been approved.  The latter group, in addition to a hard inquiry at one or more of the credit bureaus, see a new account appearing on credit reports at all three bureaus. That can mean more points off, since the scoring formula sees higher risk when it sees a new account.

Don‘t worry about those approved cardholders, though. The negative effects, if any, are short-lived, for three reasons:

  • As the new account ages, those lost points can be reclaimed within as little as six months.
  • Since hard inquiries are only considered by the score for one year and only impact the score by about five points, their impacts should be temporary and minimal.
  • If the credit limit on an approved card raises the available credit enough to effectively lower the overall credit utilization (balances/credit limits percentage), any score damage will be minimal or not at all.


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Updated: 01-21-2019