Your business is taking off, so you decide to seek preapproval for a loan to launch a new location. You’re unconcerned with the result because you know you have excellent credit. Yet, to your surprise, the request is denied.
How can this be? When you scan the letter explaining the denial, you’re horrified to see “too many recent hard credit inquiries” as the reason.
This doesn’t make sense. You haven’t applied for credit recently. So, you decide to check out your credit report on your own. There’s an inquiry listed, but you have no idea where it came from, and now it’s out to damage your credit.
To avoid this nightmare scenario, check out your credit score before shopping for a loan. Pay attention to the inquiries listed on your report. If you notice a hard credit inquiry that you can’t explain, you must get it resolved to save your credit score.
Inquiries must meet a specific set of criteria before they can be disputed. Keep reading to understand the types of credit inquiries, how long hard credit inquiries stay on your report, and the steps to remove unknown inquiries as fast as possible.
Understanding Credit Inquiries
If you’ve looked into your credit reports, you have likely noticed that you’re not the only one doing so.
When you apply for credit, credit card issuers and lenders use your credit history to gauge risk when you apply for financing. Utility companies use them to determine whether it’s necessary to charge you for a deposit. Potential employers and landlords may take a peek to see if you’re reliable or not.
These inquiries live on your credit report for two years, but they’re not all created equal. Here’s how to tell hard and soft inquiries apart, and what to do if you spot something concerning.
Finding Recent Credit Inquiries
The three national credit bureaus (Equifax, Experian, and TransUnion) offer a free credit report at least once every 12 months.
When you request your report, look for the “inquiries” section. You’ll see soft inquiries and hard inquiries.
Soft inquiries won’t show on reports requested by lenders to evaluate your credit-worthiness. Each time you check your report, you generate a soft inquiry. This is also true when lenders check your credit to see if you qualify for any pre-approved offers.
You’re more concerned with hard inquiries, the kind you generate when you apply for credit. What is a hard credit inquiry? These cause a slight, temporary drop in your credit score. When requesting your credit report, lenders will only see hard inquiries.
When calculating your overall credit score, credit scoring models factor in the number of hard inquiries on your report. Lenders get concerned when they see too many inquiries made within a short timeframe. It makes them believe you’re desperate for credit.
Evaluating Hard Credit Inquiries
While each credit reporting model presents information differently, all will label the inquiries affecting your score. If you come across an inquiry you don’t recognize, it’s time to investigate.
There are several reasons you might not recognize a hard credit inquiry. Perhaps you applied for a store credit card that is issued through a financial institution with an unfamiliar name. You might have applied for a car loan, and the application was sent to multiple lenders (this often happens due to a single authorization at a car dealership).
Sometimes you’ll see hard inquiries from debt collectors (they’re allowed to perform these checks under the Fair Credit Reporting Act), but these are usually classified as soft inquiries.
Worst case scenario: your identity has been stolen, and someone is opening accounts that are fraudulent in your name.
Discovering an Unknown Inquiry
If you believe a hard credit inquiry was performed without your knowledge or concert, you can dispute it. If you can convince the credit bureau that it’s an illegitimate inquiry, they have to remove it from your report.
As you’re fighting the mysterious inquiry, you can request a credit bureau to add a fraud alert to your reports. If you alert one of the three major bureaus, they will share this with the other two. The fraud alert will flag applications in your name so that lenders will know to over scrutinize your report.
If you want more protection, you can request to freeze your credit. Freezing your credit keeps anyone with your information from opening any new accounts in your name.
Removing an Unknown Credit Inquiry
If you’re sure you don’t recognize a new hard inquiry, there are steps you can take to have it removed from your credit report.
Begin the process by eliminating confusion and gathering facts.
1. Retrace Your Steps
Think about your life over the last several weeks. Have you gotten any new insurance quotes? Have you moved to a new place? Did you begin working with a new utility provider?
All of these things can result in a credit inquiry that is legitimate and causes no reason for concern.
Another common reason for confusion is applying for a store credit account. Maybe you applied for a business cash advance and were expecting that inquiry, but don’t see the company you applied with on your list of inquiries. This could be because the company’s preferred lender may have a different name.
2. Ask the Company for Information
If you’re still stumped, ask the lender listed next to the inquiry for more information. They should be able to tell you who authorized the inquiry and when. Asking for this information will help you determine whether the inquiry was legally initiated.
Then again, calling and asking for more information could be a waste of time. You could spend precious time on hold, only to find out that disputes need to be filed through the mail. There are advantages to submitting requests in writing, however. You’ll create a record of your dispute to refer to later if needed.
3. Request Proof
If the company has your authorization, ask for a copy of what you signed, and make sure it’s really your signature and correct personal information.
While you’re at it, make sure the authorization they supply requests permission to pull a credit report, not “public records,” or “criminal records.” It must explicitly state “credit report” on the document.
4. Dispute the Inquiry
If the authorization is one you don’t recognize, file a dispute with the credit bureau.
The credit bureau will follow up with the lender. If they don’t receive a response, they’re legally obligated to remove the disputed inquiry. The credit bureau must respond to your dispute within 30 days, but sometimes this takes longer. Don’t be afraid to follow up if you haven’t received a response in some time.
Monitor Your Credit Inquiries to Meet Your Business Goals
How you choose to deal with unknown hard credit inquiries largely depends on your current situation.
If you’re not shopping for credit shortly, or have serious credit issues, it may not be worth the effort. Any improvement to your score will be minimal, and may not do you much good.
However, if you are shopping for a loan, every positive point counts and will help you get the best loan rates.
If you’re ready to meet your business goals, we’re here to help. We’ve helped our clients bridge receivable gaps, purchase inventory, manage cash flow, and more. Get started by applying for funding with us today!
Checking for pre-approval will not affect your credit score.