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 can stay on your credit report for up to two years. In contrast, soft inquiries happen when you check your own credit or when companies pre-approve you for offers. Understanding these inquiries is essential for managing your credit score.