A credit inquiry occurs when a lender or financial institution checks your credit report to assess your creditworthiness. This process helps them determine whether to approve your application for a loan, credit card, or mortgage. There are two types of inquiries: hard inquiries and soft inquiries. Hard inquiries can affect your credit score, while soft inquiries do not. When you apply for credit, a hard inquiry is made, which may lower your score slightly. However, multiple inquiries for the same type of loan within a short period are often treated as one, minimizing the impact on your score.