A transaction whereby a bank or other credit-issuing institution views an individual’s credit report in connection with a loan or credit card application. The purpose of a credit inquiry is to evaluate an individual’s likelihood to repay money that is lent to them (known as creditworthiness).
There are two main types of credit inquiries - a “soft” inquiry and a “hard” inquiry. A soft inquiry is normally initiated by the individual (such as checking one’s own credit report for errors) and is not recorded on the individual’s credit report. A hard inquiry is recorded on an individual’s credit report when a third party views the credit report in response to an application for credit.
Hard inquiries remain on one’s credit report for two years. Having too many hard inquiries is detrimental to one’s credit score because it may be interpreted as an individual attempting to greatly expand the amount of credit available. This is an indicator that one may be intending to expand the amount of debt outstanding, which is considered to increase the risk that a borrower will not repay a loan.
Investment dictionary. Academic. 2012.
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