Understanding Credit Inquiries
When someone checks your credit, it is recorded as an inquiry on your credit report. There are two types of inquiries: soft and hard. Soft inquiries occur when you check your own credit report or when a lender pre-approves you for a loan. Hard inquiries occur when a lender checks your credit as part of the loan application process.
It's essential to monitor your credit report regularly to detect any unauthorized inquiries, which could be a sign of identity theft. You can request a free credit report from each of the three major credit reporting agencies once a year.
Types of Credit Inquiries
Soft inquiries do not affect your credit score, while hard inquiries can temporarily lower your credit score. Multiple hard inquiries in a short period can significantly impact your credit score, as it may indicate to lenders that you are taking on too much debt.
However, if you are shopping for a mortgage or car loan, multiple inquiries within a short period are usually treated as a single inquiry, as it is assumed you are comparing rates and terms.
How to Check for Unauthorized Inquiries
To check for unauthorized inquiries, review your credit report carefully. Look for inquiries from companies you do not recognize or have not recently applied for credit with. If you find an unauthorized inquiry, dispute it with the credit reporting agency.
You can dispute errors on your credit report online, by phone, or by mail. The credit reporting agency must investigate and respond to your dispute within 30 days.
Preventing Unauthorized Credit Inquiries
To prevent unauthorized credit inquiries, monitor your credit report regularly and consider freezing your credit report. A credit freeze prevents lenders from accessing your credit report, which can help prevent identity theft.
You can also set up fraud alerts on your credit report, which require lenders to verify your identity before extending credit in your name.
Federal Laws Protecting Your Credit
The Fair Credit Reporting Act (FCRA) regulates how credit reporting agencies handle your credit information. Under the FCRA, you have the right to access your credit report, dispute errors, and limit who can access your credit report.
The FCRA also requires lenders to obtain your permission before accessing your credit report, except in certain circumstances, such as when you apply for credit or insurance.
Frequently Asked Questions
What is a soft credit inquiry?
A soft credit inquiry occurs when you check your own credit report or when a lender pre-approves you for a loan, and it does not affect your credit score.
How do I dispute an error on my credit report?
You can dispute errors on your credit report online, by phone, or by mail, and the credit reporting agency must investigate and respond to your dispute within 30 days.
Can I prevent lenders from accessing my credit report?
Yes, you can freeze your credit report, which prevents lenders from accessing your credit report and can help prevent identity theft.
What is the difference between a hard and soft credit inquiry?
A hard credit inquiry occurs when a lender checks your credit as part of the loan application process and can temporarily lower your credit score, while a soft inquiry does not affect your credit score.
How often can I request a free credit report?
You can request a free credit report from each of the three major credit reporting agencies once a year.
What federal law protects my credit information?
The Fair Credit Reporting Act (FCRA) regulates how credit reporting agencies handle your credit information and provides you with certain rights, such as access to your credit report and the ability to dispute errors.