Credit Checks: How Inquiries Work on a Credit Report

What a Credit Check Is

A credit check is a request made by an organization to a nationwide consumer reporting company for information contained in a consumer's credit file. That file typically includes account history with lenders, payment records, current balances, collection accounts, bankruptcy filings, and a record of which parties have requested the file. A credit check does not involve contacting a consumer's bank, employer, or relatives for information.

The record created when a party requests a file is called an inquiry. Inquiries appear in a distinct part of a credit report, often labeled requests or inquiries, and they are visible to the consumer whenever the consumer obtains a copy. Many reports group inquiries into categories that separate consumer-initiated applications from other kinds of requests.

In the United States, credit reporting is governed primarily by the Fair Credit Reporting Act, a federal law that sets out who may obtain a consumer report and for what purposes. State law also shapes credit checks, and some states restrict how credit information may be used in employment and insurance decisions.

Who Is Permitted to Request a Credit Report

The Fair Credit Reporting Act permits a consumer reporting company to furnish a report only for purposes listed in the statute, commonly described as permissible purposes. The list includes requests connected to an application for credit, an application for insurance, an application for employment, and certain government licensing or benefit decisions. A court order or a federal grand jury subpoena also qualifies, as does written instruction from the consumer.

Existing creditors hold a separate permissible purpose. Under the statute, a creditor may review a consumer's file for the purpose of reviewing or collecting an account, which is why a lender a consumer already does business with can periodically review the file without any new application.

A company that obtains a consumer report without a permissible purpose can face liability under federal law, and both the Federal Trade Commission and the Consumer Financial Protection Bureau enforce the statute. A consumer who believes a report was obtained improperly can file a complaint with either agency.

• An application for credit, insurance, or employment
• Review or collection of an existing account by the creditor that holds it
• A court order or federal grand jury subpoena
• Written instruction from the consumer
• Certain government licensing and benefit determinations

Hard Inquiries and Soft Inquiries

Industry practice divides inquiries into two categories. A hard inquiry results from an action the consumer takes, such as applying for a credit card, an auto loan, a mortgage, or a student loan. A soft inquiry covers everything else, including a consumer's own request for a copy of a report, an account review by an existing creditor, a prescreened offer of credit or insurance, and some background checks.

The distinction matters because of who can see what. Hard inquiries are disclosed to lenders and other parties that obtain the file with a permissible purpose. Soft inquiries appear on the copy of the report provided to the consumer but are not shared with third parties that request the file.

Scoring models treat the two categories differently. Commonly used models weigh hard inquiries as a minor factor and frequently group multiple mortgage or auto inquiries made within a short period into a single shopping event, so that comparing loan offers is not counted as many separate applications. Soft inquiries are typically excluded from scoring calculations entirely. The companies that build scoring models publish descriptions of how inquiry data is handled.

• Soft inquiry examples: a consumer's own report request, an existing creditor's account review, a prescreened offer, and some employment or tenant screening checks
• Hard inquiry examples: a credit card application, a mortgage application, an auto loan application, and a student loan application

Reading the Inquiries Section of a Credit Report

The inquiries section lists the name of the requesting organization and the date of the request. Reports from the nationwide credit reporting companies are structured differently from one another, so the section may be titled Requests, Inquiries, or something similar, and it may be divided into a portion shown to third parties and a portion shown only to the consumer.

An inquiry entry does not by itself indicate whether credit was granted. It records that a report was requested and does not include the outcome of the application. Likewise, the absence of an inquiry does not mean no account was opened, because accounts can appear from data furnishers without a recorded inquiry.

Consumers who obtain their reports through the centralized disclosure site receive files from each of the nationwide companies, which makes it possible to compare the inquiries listed on each one. Inquiry lists can differ between files because a lender may request a report from only one company.

Credit Checks for Employment, Insurance, and Utilities

For employment purposes, the Fair Credit Reporting Act requires an employer to obtain the consumer's written permission before requesting a consumer report. If the employer takes adverse action based in whole or in part on the report, it must give the consumer notice, a copy of the report, and a written summary of consumer rights.

Insurance companies may request reports in connection with underwriting, and applicants generally must be told that a report may be obtained. Some states restrict how credit information may be used in setting homeowners and auto insurance rates. Landlords, utility companies, and wireless carriers may also request reports or other screening data, and the consent requirements depend on the type of transaction and on state law.

Employment screening often relies on consumer reports prepared for employment rather than reports assembled for lending, although the same nationwide companies may produce both. Under the statute, an employer that takes adverse action must follow the notice steps regardless of which type of report it used.

Checking Your Own Credit Report

Federal law gives consumers the right to a free disclosure from each nationwide consumer reporting company once every twelve months, requested through the centralized site authorized by statute, AnnualCreditReport.com. Consumers can also request reports directly from each company, and specialty reporting companies maintain separate files on subjects such as tenant screening and checking account history.

A consumer's own request is recorded as a soft inquiry. Under the Fair Credit Reporting Act, a consumer reporting company must provide the consumer with the information in the file and must disclose the sources of that information, which is how a consumer can identify which organization submitted a particular inquiry.

Reports obtained through the centralized site do not include a credit score unless the consumer purchases one, and the free disclosure is not the same product as a paid monitoring subscription. The Consumer Financial Protection Bureau publishes question-and-answer material on requesting reports and on the difference between reports and scores.

Disputing an Inquiry You Do Not Recognize

An inquiry a consumer does not recognize can indicate that someone applied for credit using the consumer's identity, that a company requested the file in error, or that a lender matched a name similar to the consumer's. Consumers can dispute information in a credit file with the consumer reporting company and can also contact the organization that submitted the inquiry directly.

Under the Fair Credit Reporting Act, a consumer reporting company must investigate a disputed item, generally within thirty days, and must correct or delete information that is inaccurate, incomplete, or unverifiable. The company must provide the consumer with written results of the investigation.

When identity theft is involved, IdentityTheft.gov provides a federal reporting process that produces a recovery plan and an identity theft report that can be attached to disputes. The Federal Trade Commission also publishes guidance on recognizing and reporting identity theft.

How Long Inquiries Remain on a Credit File

Hard inquiries generally remain on a credit file for about two years, while many scoring models consider only inquiries recorded within the past twelve months. Soft inquiries are not used in scoring and may remain visible on the consumer's copy for a similar period.

Relative to other categories of information, inquiries carry little weight in commonly used scoring models. Payment history, the amounts owed on accounts, and the length of a credit history are generally weighted more heavily, and the companies that produce scoring models publish general descriptions of those weights.

An inquiry record is an ordinary entry rather than a delinquency notation. Many lenders review the circumstances behind recent inquiries during underwriting, which is why some mortgage processors ask applicants to explain recent requests that appear on a file.