Hard Inquiries vs Hard Credit Checks vs Derogatory Marks: What You Should Know

Hard Inquiries vs Hard Credit Checks vs Derogatory Marks: What You Should Know

Hard Inquiries vs Hard Credit Checks vs Derogatory Marks: What You Should Know

When it comes to understanding what affects your credit scores, understanding the lingo can be confusing. What are hard inquiries vs hard credit checks? What about derogatory marks? 

And how do any of these fit into the credit score equation?

Yet if you are thinking about applying for credit personally or for your small business, or if you’re trying to boost your credit scores so you can get better financing in the future, understanding these terms and what they mean for your credit scores can be key.

Here we’ll explain hard inquiries vs hard credit checks vs derogatory marks, and explain what you should know about each. 

What Are Hard Inquiries and How Do They Affect Your Credit?

A hard inquiry is a notation that appears on a credit report. It is the result of a credit check. It indicates that a company has accessed that credit report to review it, or to review a credit score based on that information. An inquiry is usually created because an individual has applied for credit. 

A hard inquiry differs from a soft inquiry in one key way:

  • A hard inquiry will be shown when someone else checks the credit report, and it will be included in most credit score calculations. In other words, a hard inquiry can affect your credit scores. 
  • A soft inquiry, by contrast, will not appear on a credit report that is accessed by anyone other than the consumer. It will not affect your credit scores. 

That said, there are a couple of additional nuances here. Many credit scoring models don’t penalize consumers for rate shopping. They do this by grouping together similar inquiries for certain types of credit applications that occur in a short period of time. With certain FICO score models, inquiries for auto loans, student loans or mortgages in a specific time frame (14 days, for example, or 45 days depending on the model) will count as a single inquiry.  

VantageScore groups inquiries within a 14-day period and counts them as a single inquiry.

Best ways to minimize the impact of hard inquiries

There are two ways to minimize the impact of hard credit inquiries:

  1. Apply strategically for new credit or other types of financing. Just because a store clerk offers you 10% for opening a new account, for example, that doesn’t mean you need to go for it. 
  2. Apply where you’re more likely to get approved. This can be tricky because most lenders don’t reveal all of their qualifications; doing so can open them up to fraudulent applications. Nav can help you narrow down your choices based on your qualifications. 

What Is a Hard Credit Check and How Is It Different?

Closely related to the term “hard inquiry,” is the term “hard credit check.” These two terms are so closely related that they are often used interchangeably. But there is a slight difference between them.

So what is the difference between a hard inquiry and a hard credit check?

A hard credit check (a.k.a. hard credit pull) describes the process of obtaining a credit report and/or credit score on an individual (or business), for a purpose that will result in a hard inquiry. 

A soft credit check, by contrast, describes a process where a credit report and/or credit score is obtained for a purpose that will result in a soft credit inquiry. 

In other words, the credit check is the action that triggers the inquiry that will appear on the credit report. 

Situations that trigger a hard credit check usually involve an application for credit. These can include an application for a credit card, mortgage, car loan, cell phone plan, for example. 

Examples of credit checks that usually result in a soft pull include applications for insurance or employment/background checks, account reviews, checking your own credit reports or credit scores (for example, though Nav), and lenders periodically reviewing your existing account. 

You’ll see soft credit checks on your credit reports, but they won’t appear on credit reports sold to other companies. Soft credit checks don’t affect your credit scores. 

How specifically does this relate to small business owners? Some small business loan and financing applications require a personal credit check, some involve a business credit check, and some involve both. 

When personal credit is checked for a small business loan application or some other type of financing, it may be a hard inquiry, a soft inquiry, or both. 

Most small business credit card issuers check personal credit when you apply, and will result in a hard credit inquiry from the credit card company. That doesn’t mean you shouldn’t apply for a business credit card, but you will want to apply for cards you’re more likely to qualify for. 

What Are Derogatory Marks and How Do They Negatively Impact Credit?

Derogatory marks are items on credit reports that may be viewed negatively by creditors and credit scoring models. These include missed payments, bankruptcies, foreclosures, collections, charge-offs, and public records like tax liens and civil judgments.

Since payment history is the number one factor that makes up most credit scores, these negative items can result in lower credit scores. The stronger your credit scores are to begin with, the more these types of negative items can hurt your scores.

Most credit scoring models look at late payments in the following ways:

  • Recency: How recently did the event occur? Recent late payments and derogatory marks typically have more of an impact on the score. 
  • Frequency: Is it a one-off, or a more regular occurrence?
  • Severity: How far behind did the individual fall on payments? A single 30-day late payment will be viewed as less severe than a 90-day late payment or a collection account, for example. 

If you do find these types of items on your credit reports, and you believe the information is inaccurate or incomplete, you have the right to dispute it with the credit bureau. (This right extends to consumer credit reports, not business credit reports.) 

If the information can’t be confirmed with the source that reported it, it typically must be removed. But just because you can’t get a negative item removed from your credit reports, that doesn’t mean there’s nothing you can do to work on your credit. 

On consumer reports, most derogatory marks can remain on the credit report for up to seven years, although some, like bankruptcies, can be reported for up to ten years. There is no time limit on how long negative information can be reported on business credit. 

Typically, as negative information gets older, it will carry less weight, as long as your credit reports show on-time payments going forward. 

So even if negative information remains on your credit reports, you can use credit references like secured credit cards or credit builder loans to build credit references that may boost your credit scores over time. 

How Do Hard Inquiries, Hard Credit Checks, and Derogatory Marks Interact?

A credit check and negative items on your credit reports can affect your applications for loans and financing. But of the two, negative information will likely be much more of a problem than inquiries.

Small business owners who may never have checked their business credit reports (or not done so recently), may find it harder to get approved for financing due to information on their credit reports—and not even be aware of what’s holding them back. 

That’s one reason why it’s good to check your credit reports, especially if you own a business. Again, some lenders may check personal credit, business credit, or both. 

You’ll want to check both so you can see what lenders see.  

How to Dispute Errors?

You won’t know if there are errors on your credit reports unless you check them. 

You can get your personal credit reports from the major credit reporting agencies—Equifax, Experian and TransUnion. Federal law requires they each give you a free credit report at least once a year at AnnualCreditReport.com. There are many places to get your personal credit scores for free. 

You can get your business credit reports from business credit bureaus such as Equifax, Experian and Dun & Bradstreet, but there is no requirement they show you your reports for free. 

Nav is the only source where you can view, monitor and manage business and personal credit in a single dashboard. 

If a creditor sees negative information on your credit history it’s going to assume that information is correct. Similarly, if negative information is on your credit report and credit score is calculated, that information will be part of your credit scores.That’s another reason why it’s so to check your credit. 

Ultimately it’s up to you to identify and dispute mistakes on your credit reports. 

What happens if there’s negative information on your credit reports due to fraud or identity theft? It can certainly happen—it happened to me when I was targeted for both consumer and business id theft at the same time.

If you are a target of identity theft, you’ll need to take steps to resolve it, including getting a police report, and contacting creditors and the credit bureaus.

How to Protect Your Credit

If you’re concerned about how to protect your credit from hard inquiries, the first thing you should know is that inquiries are typically a very small player in the factors that make up credit scores. 

Still you can be careful about when and where you apply for credit to help avoid unnecessary inquiries. 

Other factors like payment history and debt are much more important, and should be your main focus. Set up auto pay or reminders to make sure you don’t miss a payment, and try to keep balances low, especially on revolving accounts like credit cards. 

Check and monitor your credit on a regular basis and use credit alerts to identify changes to your scores. 

How Nav Can Help You Monitor Your Business Credit

We’re highlighting Nav here because it was designed for small business owners and, as a result, offers the most comprehensive view of personal and business credit. 

With Nav Prime™, you’ll get both personal and business credit scores* and Detailed Credit Reports from two leading business credit reporting agencies: Equifax® and Experian™, along with business credit scores Equifax® Business Delinquency Score® and  Experian™ Intelliscore PlusSM V2.* 

Personal credit is also important to lenders, and with Nav Prime you’ll get personal credit scores and detailed reports from  Experian™ and TransUnion®. Scores provided are the TransUnion® VantageScore® 3.0, and Experian™ VantageScore® 3.0. 

Reports and scores are updated monthly when you log in. Understand what information companies are reporting about your business, and view both business and personal credit in one dashboard.  

In the Credit Health hub, see aggregate trends in your credit, key factors having the most impact on your scores, and insights into new progress you’ve made. 

You’ll also see details on public records, including UCC filings, that can directly and indirectly impact financing or other opportunities. 

FAQs About Hard Inquiries, Hard Credit Checks and Derogatory Marks

Is a credit check the same as a hard inquiry?

A credit check is the process of checking a credit report and/or credit score. The inquiry is the result of that credit check. 

Are inquiries on a credit report derogatory?

The impact of inquiries on credit scores is usually pretty small. FICO says they only account for about 10% of the credit score formula, for example. Too many hard inquiries, especially in a short amount of time, can lower your credit scores. 

How many points is a hard inquiry on your credit report?

There’s no single amount of points an inquiry will lower one’s credit score. It depends on the credit scoring model used, as well as other factors in the credit report. Typically, though, a hard inquiry may lower a credit score by 3-7 points.

How damaging is a hard inquiry?

A hard inquiry may lower your credit scores by a few points. Keep in mind that inquiries typically only affect credit scores for up to a year. And after two years, they are no longer reported. 

How to remove hard inquiries and negative remarks

When it comes to your personal credit reports, you have the right to dispute information you believe is inaccurate or incomplete. If the information is not confirmed by the company that reported it, it can no longer be reported, unless it’s later verified. 

What is a hard pull vs soft pull

A hard credit pull results in a hard inquiry that affects credit scores calculated from that credit report. A soft inquiry does not affect your credit scores. 

What’s worse, high credit utilization or a hard pull on credit?

Debt tends to have a bigger impact on credit scores than inquiries. And with consumer credit scores in particular, credit utilization—balances on revolving accounts like credit cards as compared to credit limits—will often have a big impact on credit scores. 

How long do derogatory marks stay on your credit report?

Under federal law, the Fair Credit Reporting Act, most negative information can be reported on consumer credit reports for up to seven years. (Bankruptcy may be reported up to ten years from the filing date, though Chapter 13 bankruptcy typically stops reporting after 7 years). 

That law does not apply to business credit reports and there is no time limit negative information may be reported on business credit reports. Policies for reporting negative information vary by credit bureau. 

What if I don’t have business credit?

Learn how to establish business credit with tradelines and accounts that report.

*Nav provides access to Experian™ Intelliscore PlusSM V2, Equifax® Business Delinquency Score®, TransUnion®VantageScore® 3.0, and Experian™ VantageScore® 3.0. VantageScore is a registered trademark of VantageScore, LLC.

This article was originally written on May 13, 2024.

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