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Note: Last month’s story, “Banks are giving out free credit scores,” discussed the importance of knowing this vital information. This month, we describe how credit inquiries by you and others can affect your score.

Have you noticed inquiries on your credit report? Not sure what they mean?

So-called “soft” and “hard” inquiries are the result of potential creditors assessing your credit report after you’ve applied for things such as a credit card, mortgage or car loan. Hard and soft inquiries each affect your credit differently. Read on to learn more:

What are soft inquiries?

Soft inquiries typically occur when your credit report is pulled for a background check. This can occur when you are applying for a new job, getting pre-approved for lending offers, and even when you check your own credit score.

While they will usually show up on your credit report, this isn’t always the case. Plus, they won’t affect your credit score, so you don’t need to be concerned about them.

What are hard inquiries?

Hard inquiries occur when a lender pulls your credit report to make a lending decision. This takes place most commonly when you apply for a loan, credit card or mortgage. However, there are other reasons that your credit may reflect a hard inquiry, such as when you request a credit limit increase.

These inquiries can, in some cases, lower your FICO score by one to five points, and can remain on your credit report for up to two years. Typically, the more hard inquiries on your credit report, the likelier it is to affect your score.

Multiple hard inquiries in a short period of time can cause significant damage to your credit. When multiple hard inquiries come through at once, the credit bureaus assume you are desperate for credit or can’t qualify for the credit you need. Any future creditors may also take this information and assume that you are a high risk borrower, which will reduce your chances of getting the credit you need.

In fact, according to myFICO, people with six hard inquiries or more on their credit are up to eight times as likely to file for bankruptcy, compared to people with no inquiries — meaning that more inquiries usually means greater risk.

Exceptions to the rule

There are certain instances that are gray areas, which may result in a soft or hard inquiry depending on the situation (such as when you rent a car, or sign up for new cable or Internet service).

If you aren’t sure about whether your actions will result in a soft or hard inquiry, you can simply ask the financial institution you are requesting financing from.

Another exception is when you are rate shopping. Generally, your FICO score will only record one single inquiry within a 14 to 45 day period if you are shopping for the best mortgage, auto loan, or student loan rates. By doing all of your shopping for the same type of loan within a two-week span, you can reduce the effect on your credit.

If a hard inquiry occurred without your permission, you may be able to dispute it. This can be done by calling or writing the creditor and asking them to remove the unauthorized hard inquiry from your credit report. You can also dispute them directly with the credit bureau. Otherwise, if you’ve authorized the hard inquiry, it can take up to two years to disappear from your credit report.

How inquiries will affect your future

As is the case with anything that negatively affects your credit score, inquiries can affect your ability to get good loan rates. More hard inquiries means a lower credit score, which means fewer credit options or a higher interest rate. This will ultimately mean you will pay more over the life of the loan.

The good news about a hard inquiry is that if you aren’t doing them often, they aren’t going to have a big effect on your credit. For instance, factors like your payment history, credit history, and credit utilization rate are weighted much more heavily.

Continue monitoring your credit every month to ensure that there are no unauthorized hard inquiries or other issues so that you can continue to maintain the highest score possible.

On the other hand, if you already have bad credit, then an additional hard inquiry can have an even greater impact on your score. Try keeping your hard inquiries to only one or two a year, if possible.

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website.

All contents © 2016 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC