How long does it take for your credit score to rebound from a “soft inquiry?” That’s what Tiffany wants to know for this week’s Money Monday:
I inquired about a car loan and the dealer said soft inquiry, but performed six hard inquiries against my report. I never purchased a vehicle. My score has since dropped 75 points. How long will it take for my score to go back up? How can I determine how many points it dropped per hit?
Each Monday we’re tackling one of your pressing personal finance questions by asking a handful of money experts for their advice. If you have a general question or money concern, or just want to talk about something PeFi-related, leave it in the comments or email me at email@example.com.
This is what individual experts have to say generally about an issue that affects each person differently—if you want personalized advice you should see a financial planner.
Recovering from a Credit Score Drop
You have good reason to be frustrated, Tiffany—what the dealer did is unethical and potentially damaging.. While we’re subject to the fickle whims of the credit agencies in the U.S. for many of our financial decisions, there’s little to no good will given to us in return for playing by their rules, making repairing our score after something like this difficult.
But there are a few hard and fast rules—or at least, best practices when it comes to rebuilding credit.
There are several different credit scores and formulas out there, but for your FICO score, multiple credit inquiries in a single shopping period for an auto loan only count as a single inquiry. “So there might have been six inquiries on the credit report in this example, but because they were all done at once, FICO would only treat it as one inquiry for credit reporting purposes,” says Nick Clements, GM of MagnifyMoney.
Typically, an inquiry won’t hurt a score too much—it might shave off five points or so, but the effect is usually minor. The exception is if you have a “very thin” credit history, according to Clements.
There Is No Good Faith When It Comes to Your Credit Score
“Credit scores start to get very ‘nervous’ when there are a lot of inquiries in a very short period of time, especially when those inquiries do not relate to shopping,” he says. “For example, if someone has three personal loan, three credit card and an auto loan inquiry all within a few weeks, the impact could be more dramatic.”
Your credit score should fully recover within six months, according to Clements, assuming nothing else changes. “But again, this is a general guideline,” not a guarantee.
Build Up Your Score
Still, if your score did drop that much in a short period of time, something’s up. “If she is looking at the same score from the same credit bureau and it dropped 75 points, she needs to pull her credit report from that bureau and see what’s going on,” says Liz Weston, NerdWallet’s personal finance columnist and CFP.
“If this person’s scores really did drop 75 points, something else almost certainly caused it, such as a late payment on a bill, maxing out a credit card or an account going into collections.”
To start rebuilding your score, or boost it in general, first make sure you understand the basics of the system and what your score actually is. You can get it for free here. Here’s a primer on how it’s computed. If you get a copy of your credit report and see bad marks you don’t think belong there, getting them taken off could help pump up your score.
Next, consider a credit builder loan or one of these options:
Pay off past due accounts: The collections amounts won’t be removed immediately after you repay them, but a repaid bill is viewed more favorably than a past due bill. And make sure you’re checking your score for mistakes or black marks that can be removed.
Apply for a secured credit card: “As long as you pay the balance in full every month, you don’t have to worry about interest charges,” says Greg McBride, Bankrate’s chief financial analyst. “But stay away from those that have big application fees and annual fees.”
Become an authorized user on a family member’s card: But remember, both of you have responsibility for payments, and both of your credit scores will be affected.
And then be patient. While Clements says it’ll take six months for your score to rebound, it’ll take at least another six for it to start growing, assuming you follow best practices