As tax season approaches, many individuals take time to review their overall financial health. This often includes checking credit reports and understanding how credit activity may impact financial decisions. One common question we receive at BD Tax LLC is what hard inquiries are on a credit report and whether they affect taxes.
What Is a Hard Inquiry on a Credit Report
A hard inquiry occurs when a lender reviews your credit report after you apply for credit. This typically happens when applying for credit cards, auto loans, mortgages, personal loans, or business financing. Because the lender is evaluating risk, the inquiry is recorded on your credit report and may slightly reduce your credit score.
Hard inquiries usually remain on your credit report for up to two years, although their impact on your score is strongest during the first twelve months.
Difference Between Hard and Soft Inquiries
Hard inquiries affect your credit score and are visible to other lenders. Soft inquiries do not affect your score and include actions such as checking your own credit, employer background checks, or receiving pre approved credit offers.
Understanding the difference helps prevent unnecessary damage to your credit during important financial periods like tax season.
Do Hard Inquiries Affect Your Tax Return
Hard inquiries do not directly affect your tax return, refund amount, or filing status. The IRS does not review your credit score when processing your return. However, hard inquiries can indirectly affect tax related financial options.
For example, credit may be reviewed if you apply for a refund advance, use third party financing to pay a tax balance, or seek business funding after filing.
Why Hard Inquiries Matter During Tax Season
If you owe taxes and need payment flexibility, lenders may review your credit profile. Multiple recent hard inquiries can reduce approval chances or increase interest costs. This makes it important to avoid unnecessary credit applications during tax season.
BD Tax LLC helps clients understand how tax planning and credit awareness work together to reduce financial stress and improve long term outcomes.