What is a credit enquiry?

By Rebecca Pike, money expert at Finder

You’ve probably heard about your credit rating – but do you know how it’s calculated?

You might know that your credit report consists of any outstanding debt and late payments, but did you also know that every time someone looks at your credit report it’s lodged on your file as an “enquiry”.

Let’s take a look at the two different types of credit enquiries you might see on your credit report.

What is a credit enquiry?

A credit enquiry is any time someone takes a look at your credit report. That might be you checking out your credit rating, or it might be the bank or other lender seeing if you’re in good shape to be offered a loan.

It doesn’t stop there, though. Your credit report lists two different types of enquiries: hard and soft.

What’s the difference between a hard and soft credit enquiry?

Let’s say you want to check your own credit rating. You access your file and take a look at what it shows: this is a soft enquiry. Or maybe your bank has taken a look at your credit file to pre-approve you for a loan or credit card: this is also a soft enquiry.

These kinds of enquiries don’t affect your credit score. While you can see them on your credit file, it’s only you who can see them.

On the other hand, hard enquiries can be seen by anyone who looks at them, they can also impact your overall credit rating.

If a bank checks your credit file because you’ve applied for credit (that can be anything from a credit card up to a mortgage), that’s a hard enquiry. You must have provided written authorisation for a third party to conduct a hard enquiry.

Although one or two hard enquiries won’t affect your credit rating too much, multiple credit enquiries in a short period of time can have a significant impact. Not only will it reduce your credit rating, but lenders could see it as a sign that you’re unable to manage your finances and might be a high-risk borrower.

What’s included under a hard credit enquiry?

When a bank or lender checks your credit report and sees a hard enquiry, they will see any credit applications made in the last five years, the name of the organisation to which you applied, the date of the application, the type of credit and the amount of credit.

They will not be able to see whether the loan was declined, approved or accepted by you. However, any credit accounts you have had open will also be listed on your report. Information on closed accounts will be held for two years.

How long does a credit enquiry stay on your credit report?

Credit enquiries will remain on your credit report for five years, regardless of whether you were approved or declined finance.

Can you dispute a hard credit enquiry?

If you’re looking at your credit file and you notice something that doesn’t look right, you can dispute it. Any legitimate enquiries cannot be removed.

Times you might be able to get a hard enquiry removed are: if a lender made an enquiry without authorisation, if your name was attached to an account you never opened or an account was incorrectly listed as being in default.

It’s important to check in with the relevant lender before you flag anything with the credit reporting body to clarify whether the details are indeed wrong.

How can you overcome hard enquiries?

It’s good practice to check on your credit rating before you apply for credit so you know what your report looks like. This can help you decide whether you are in a position to apply straight away or if you should work on improving your credit rating first. You don’t want to risk applying if you are likely to be declined finance and then left with a hard enquiry on your file.

If there are multiple hard enquiries on your credit report, but you’re thinking about applying for finance in the future, it’s worth starting work to improve your credit rating as soon as possible.

There are a few things you can do:

Limit new applications

Any new applications are adding hard enquiries on to your credit file, so hold off applying for anything else.

Settle outstanding debt

If you can pay off any of your existing debt in full, this will show in your credit report and demonstrate how responsible you can be with money.

Pay your bills

Your repayment history stays on your account for two years, so keep up with your repayments to build a better credit rating.

Close old accounts

Your credit file will list open credit accounts. Take a look at these and make sure you close any you no longer need. For instance, your name might still be listed on old electricity accounts you shared with housemates.