For those with a low credit score qualifying for a loan can be nearly impossible. You need to have a good understanding of your credit report and how inquiries affect your Fico score when it comes to homebuying or purchasing a vehicle. Here is an overview of inquiries and how much effect they have on your credit score.
Don’t Waste Your Time Disputing Inquiries
The only time you should dispute an inquiry is when it is unauthorized or outdated. A credit inquiry is the documentation of someone looking at your credit history to qualify you for a credit account. Now, this might take a few points off your score but it will not hurt you that much. Hard inquiries only affect your score for a short amount of time and soft inquiries don’t usually affect you at all.
Examples of a Hard Inquiry:
- Credit card applications
- Auto loan applications
- Mortgage applications
- Apartment rental applications
- Student loan applications
- Personal loan applications
A soft inquiry is when you check your own credit report for mistakes or when your employer performs a background check. Utility companies will sometimes check your credit to wave a deposit for new service. They will ask your permission to run the check and will tell you if it will be a hard or soft pull.
Inquiries Don’t’ Affect Your Credit as Much as You Think
You might be surprised to find out that inquiries aren’t as damaging to your credit score as you think. Everyone is worried about inquiries and how to get rid of them but the truth is that you have to authorize a lender to check your credit and if it is valid then it won’t be removed. You can only dispute hard inquiries that occurred without your permission.
You are advised to check your credit periodically to spot inaccuracies or instances of unauthorized activity that could indicate identity theft. If you dispute errors in your credit report, the credit bureau is required to investigate the matter and correct any errors.
You’re Allowed a Shopping Period
When it comes to homebuying, you may have to go through several lenders before you find one that will approve you. Does this hurt your credit score? Yes, but only the first one counts. You are allowed a shopping period when it comes to finding a car or mortgage loan. As long as the inquiries are all within a 30-day period they count as “1” inquiry. What hurts you more is applying for several credit cards within a short period of time because it looks as though you’re short on cash and makes you look bad to credit lenders.
Here is why inquiries aren’t that bad. Hard inquiries only stay on your credit report for 2 years. They only affect you for a short time and then after that have no effect at all.
Creditworthiness plays a big role in your financial stability. Before applying for any type of loan, take the time to build up your credit. A higher credit score will improve your chances of being approved for a loan with the best possible terms and rates.
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