What it is:
How it works (Example):
A hard inquiry helps a bank or credit card company assess the risk that an applicant will default on his or her repayment obligations. For example, an individual applying for a mortgage can expect the prospective lender to conduct a hard inquiry on his or her credit report. Individuals with higher credit ratings are more likely to be approved for loans and credit than those with lower credit scores.
Why it Matters:
A hard inquiry can adversely affect an applicant's credit rating depending on the type of loan. The reason is that certain loan applications suggest to credit agencies that an individual is (or may become) less solvent and, consequently, needs (or may need) cash.