Do credit inquiries impact my credit score?

There are two main types of credit inquiries – soft inquiries and hard inquiries. 

• Soft inquiries

Soft inquiries don't generally impact your credit score. A soft inquiry is recorded when you request a copy of your credit report or a potential employer carries out a background check before employing you. Pre-qualified credit card, loan, and insurance offers also constitute soft inquiries. However, it is considered an application if you accept the offer.

• Hard inquiry

A hard inquiry, or hard pull, is recorded when a third party requests your credit file. For example, each time you apply for a loan or credit, the lender will most likely submit a request with one or more of the credit bureaus for your credit score. Such hard inquiries could hurt your credit score by five or 10 points each time you apply. While this may not seem like much, the numbers can quickly add up when you make successive credit applications, resulting in a lower credit score.

If you have several hard inquiries on your file in a short period, it could impact your credit score adversely and even lead some lenders to believe that you're in some kind of financial difficulty. 

If you're wondering about the number of inquiries listed on your file, you may request a copy of your file from one (or all) of the credit bureaus and go through it for details. You might also find it helpful to sign up for credit score alerts to get notified whenever there's some change on your credit report.

Once you receive your credit report, go through the number of listed inquiries and the time between them. Usually, the farther out they're spread in time, the better it is for your credit score. It's also possible that you find an entry that you cannot remember. While it isn't that common, it's possible for erroneous information to be listed on your credit report, and you can submit a request to have such entries removed from your file.

According to the website of the Office of the Australian Information Commissioner, credit inquiries stay on your file for five years. Additionally, your repayment history stays on your file for two years, and payment defaults will remain on the file for five years.

It's usually helpful to research and carefully compare your options before making multiple applications for credit, such as applying for multiple credit cards at once. For instance, you may compare credit card deals from multiple credit providers online to check the interest rate and fees and whether you meet the eligibility criteria before applying for one.

You'll have to wait for five years for hard inquiries to be removed from your credit report unless there's an incorrect entry, which you have the option to dispute. Generally, you can only have those details removed from your file that are erroneous or incorrect. For instance, if your name shows up on a credit account you never opened, you may submit a request for eliminating the incorrect details from your file. 

Australian Securities & Investments Commission (ASIC) warns consumers about companies that claim to clean up your credit file or fix your debt. Paying a credit repair firm is unlikely to improve your credit. Additionally, such firms might charge you high fees for removing incorrect default listings, which you can easily do yourself for free.

The process of credit card inquiry removal is pretty straightforward if you're disputing incorrect listings on your file. Here are three simple steps for removing incorrect inquiries from your credit report. 

• Step 1

If you're concerned about your financial health, one of the first steps to consider is reviewing your credit report by ordering a copy online from one or more of the credit bureaus. Once you receive your credit report, spend some time going through it and flag any inquiries for credit or utility applications that seem unfamiliar. 

It's also worth remembering that credit or utility providers can only make a hard pull after receiving your consent. While this could be as simple as checking a tick box on a form, if you find an entry you think you didn't approve, it's worth flagging it for the next step.  

• Step 2

Once you've identified the unfamiliar inquiries, you may start contacting the associated credit providers, one by one, to verify whether you approved the inquiry or not.  

• Step 3

After following up on the unfamiliar entries, if you still think you've had a credit default listed wrongly against you, or there's an inquiry listed that wasn't authorised by you, you can write to the credit reporting body and ask for it to be removed. 

In case you aren't happy with the response, you may want to contact the relevant dispute resolution service for help, as informed by the concerned credit reporting body.