Never fear; the Credit Wizard is here! Here to clear the air about checking your credit score. There are many reasons for why you’d want to check on the status of your credit score. You’re a good noodle for ensuring it won’t have any negative repercussions.
You might have missed a payment and want to see the damage or you’ve been hitting the credit-building gym harder than usual and want to see your gains. There’s no need to fear checking your credit score, as long as you’re doing it yourself.
On the other hand, you might be having your credit score checked because you’re applying for an auto loan, credit card, or mortgage. In this case, you’re not checking your score yourself, and you might experience an unpleasant and unexpected score deduction.
Usually, you’re going to check your credit score for one of two reasons. Either you’re curious and want to know how things are looking under the hood, or you’re applying for credit. So does checking your credit score lower it? It depends on your intentions.
The two reasons for checking out your credit score warrant two kinds of credit checks: Soft and hard inquiries.
Soft Inquiry Defined
A soft credit inquiry, also known as a soft credit check or soft credit pull, is when you or someone you authorize checks your credit report. Soft inquiries don’t impact your credit score. When you check your credit score to know what your current standing is, you’re in the clear.
Some examples of soft inquiries are when:
- You check your credit score
- One of your current creditors checks your credit score
- A creditor does a “soft-pull” pre-approval inquiry (you authorize a creditor to check your score)
Seriously, soft inquiries don’t affect your credit score. If you’re looking at your score on your own accord, you’re in the clear. If anyone other than you is curious about your credit score, you should always ask the company whether it will use a hard or soft pull to check your score.
How Do Soft Inquiries Appear On Your Credit Report?
Soft inquiries appear on your credit report, but they don’t change anything about your credit score. If anything, multiple soft inquiries could hint to a potential creditor that you care about your personal finances and keep a close eye on them. You could have hundreds of soft inquiries on your credit report, and it doesn’t mean a thing.
Remember that your credit reports from the different bureaus don’t always carry the same information. Your soft inquiry will only appear on the credit report that you check.
A hard credit inquiry, also known as a hard credit check or hard credit pull, is something you should be more mindful of. Hard inquiries are used whenever you’re applying for credit. Hard inquiries do impact your credit score.
Some examples of hard inquiries are when:
- A credit card company checks your credit because you applied for a new card
- A financial institution (bank) checks your credit because you applied for a mortgage
- A company checking your credit before leasing you a car
Your credit score is only impacted when a creditor requests to see your credit report.
How Do Hard Inquiries Appear On Your Credit Report?
Credit bureaus will keep track of the date and name of the company or entity accessing your credit information. This record is helpful because it lets you know who’s accessing your data and gives you a more concrete credit history to refer back to.
Are You Screwed After A Hard Inquiry?
Hard inquiries aren’t the end of the world; they’re just a part of the credit reporting and credit reviewing process. Don’t you remember the five aspects that make up your credit score? Of course, you do, but in case you need a refresher:
Your credit score is calculated given your on-time payment history, credit utilization, credit history, credit mix, and recent credit applications. Hard inquiries are a part of that last component (recent credit applications.)
Credit applications account for 10% of your credit score; not a huge percentage, but they still have an impact. Don’t let a fear of hard inquiries keep you from applying for credit that you need, but also try to avoid multiple applications within a short period of time.
Multiple credit applications can give creditors the impression that you’re desperate for credit or that your finances aren’t stable (not the best look).
How Many Points Do You Lose For A Hard Inquiry?
According to FICO, a new hard credit inquiry will drop your credit score between one and five points.
A few points aren’t the end of the world, but if you’re teetering between a fair and good credit score range, you might want to think twice before submitting any more applications.
Keep in mind that multiple inquiries can stack up. The more inquiries, the greater impact on your credit score. This stacking sucks when you’re shopping around for different rates on things like mortgages and loans. In these situations, there is a way around racking up multiple hard inquiries.
How To Avoid Multiple Inquiries When Rate Shopping
If a lender offers pre-qualification, you can typically check your interest rate without a hard credit check. A hard credit check will be run after you prequalify and choose a lender.
Not every lender offers pre-qualification, but if you do all of your rate shopping for mortgages, student loans, or auto loans within a short period of time, it’ll be recorded as a single hard credit inquiry.
The period you have to complete your rate shopping varies. FICO has many different credit scoring models that lenders can request. Your rate-shopping period can lie anywhere between 14 and 45 days, so try to do all of your rate shopping within the same two-week period if you can.
How Long Will A Credit Inquiry Stay?
Hard credit inquiries tell creditors when the last time you applied for credit was. A new credit application remains on your credit report for about two years. Keeping your credit applications two years apart can help you avoid looking irresponsible with credit.
Although inquiries remain on your report for two years, they only affect your credit scores for one year.
Another Myth Debunked: Checking Your Credit Score Only Hurts Sometimes
Not many people are well informed on the difference between a soft and hard credit inquiry or even know they exist. The confusion surrounding credit checks leads many people to avoid checking in on their credit reports altogether.
If you’re not keeping an eye on your credit records, you can miss out on errors being made, risk identity theft, or miss out on opportunities your score is creating for you.
You can check your credit score with confidence now that you know the difference between a soft and hard inquiry. Stay in the loop on where you stand and take advantage of the credit score you’re building for yourself.