The Finatical
Week of September 20th, 2022 - Soft vs Hard Credit Inquiries, Inflation, Fed Hikes
Topic Breakdown - Soft vs Hard Credit Inquiries
When someone asks for and receives your credit information, it is called a credit inquiry. Some credit checks are called "hard inquiries," while others are referred to as "soft inquiries." The distinction between the two names is related to how each sort of inquiry may affect your credit score. In this article, we will be covering soft inquiries, hard inquiries, and going over some examples of both.
Hard Inquiries
When a financial institution/bank, such as a lender or credit card provider, investigates your credit when making a loan decision, this is referred to as a hard inquiry. They usually happen when you apply for a mortgage, loan, or credit card, and you are normally responsible for the authorization of a hard check. A hard inquiry may drop your credit score by a few points, or it may have no effect at all. In most circumstances, a single hard inquiry is unlikely to have a significant impact on whether you are accepted for a new credit card or loan. Also, the impact to your credit scores normally fades or is completely gone even before 2 years, which is the typical amount of time that hard inquiries will stay on your report. To put it simply, when you apply for something, a hard credit inquiry is normally done. When a hard inquiry appears on your credit report, it has the potential to reduce your credit score. So why does this happen? Lots of hard inquiries in a shorter amount of time may cause lenders and credit card issuers to see you as a customer who is higher risk, indicating that you are short on cash or about to be in a lot of debt.
Soft Inquiries
Soft inquiries happen when an individual or a company runs a background check on you. This might happen if a credit card company analyzes your credit to determine if you are eligible for any credit card offers. Before employing you, your company may do a soft inquiry. One common type of soft inquiry is when you check your own credit scores. Soft inquiries, unlike hard inquiries, have no effect on your credit scores. Depending on the credit agency, they may or may not even be reflected in your credit reports. Soft inquiries are generally only accessible when you check your credit reports because they aren't associated with a specific application for new credit. Basically, soft credit inquiries do not affect your credit score and will not appear on your credit record if a lender sees it.
Examples
Now, we can look at some examples of both soft and hard credit inquiries. Hard inquiries include the following sorts of credit checks: requests for loans, applications for credit cards, credit limit increase requests, lines of credit applications, new utility applications, and rental applications. These are a lot of ways your credit score can decrease, but the good news is that a single new inquiry would typically drop a credit score by no more than five points. As the inquiry ages, its influence on your score should diminish until it no longer counts at all. Soft inquiries include the following sorts of credit checks: credit checks you do yourself, credit offers with pre-approval, applications for insurance, when current creditors conduct account reviews, and finally, applications for employment. Remember, soft inquiries do no damage to your credit score!
Financial Trends
Inflation Continues To Rise
Inflation continues to be a concern as it started to rise above its expected rate towards the end of August, due to rising shelter and food costs, along with a drop in gas prices. According to the Bureau of Labor Statistics, the consumer price index, which tracks a broad swath of goods and services, increased 0.1% for the month and over 8.3% for the year. Economists have been exclaiming that headline inflation will fall to 0.1% and core inflation to increase to 0.3%, with respective year-over-year forecasts for 8% and 6% gains. Markets such as energy, food, and medical services all saw a drop in prices as their costs significantly increased with futures being associated with the Dow Jones Industrial Average down by nearly 350 points after being higher exactly one year ago.
The CPI (consumer price index) reading is one of the best indicators for determining whether inflation will remain in the near future or if it will finally be controlled by the Feds. There are wishful expectations from financial analysts hoping that the nation’s economy is on a downward trajectory and the Fed’s decision to lay off on gas prices may have been a bit premature. As treasury yields continue to leap higher, various markets are expecting the Feds to enact another 0.75 percentage point increase at its meeting next week. The Federal Reserve is hoping to slow down the labor market with the high number of new jobs as of late, as another method to combat inflation.
Federal Reserve Rate Hikes’ Impact
The market’s reaction with higher inflation could result in more losses for Americans throughout the nation. According to investor Peter Boockvar, he believes that Wall Street is approaching situations where they will have to give even more pain to citizens: “Inflation isn’t moderating, so the Federal Reserve won’t pivot”. The next interest rate hike from the Federal Reserve will only be the second time in 40 years that the Fed funds rate is going to exceed the prior peak in a rate hiking cycle. After the August CPI rose, the major indexes fell extremely low in their values, worrying economists of the nation’s economy looming another recession.
Bookvar, however, believes that the Fed will not go too extreme with their federal interest rate hikes but also warns investors having to still deal with economic consequences from wealth destruction to earnings declines. The primary concern that all investors have with inflation currently is the cost of labor. The majority of them are worried about the rate at which they are increasing, while the amount of revenue is starting to slow down, will result in further cuts in earnings estimates. Peter Boockvar remains confident in the nation’s economy as he states, “this is a Federal Reserve that could not raise interest rates 25 basis points in 2018 and actually turned the market into a convulsion, and ultimately having to take a step back and begin the easing process”.
Financial Guidance
“A good plan, violently executed now, is better than a perfect plan next week.” ― George Patton
Timing is important. However, sometimes it can be better to act quickly and decisively, even if the timing isn’t perfect. Rather than wait for a perfect chance and never get it, it can be a more effective option to act first and work out the details as you go.
Term of the Week
Federal Reserve - The Federal Reserve, or also commonly known as the Fed, is the central bank of the United States of America. The Fed controls the money supply by buying or selling securities on the open market. It also sets various reserve requirements for banks to ensure that they always keep a certain amount of cash on hand. Finally, the Fed also controls various funds rates to influence interest rates.