You have most likey learned that checking your credit score regularly is recommended. In the age of wide spread identity theft, a good portion of consumers will check their scores periodically, and when you need to take out a loan or make a major purchase, the lender will also pull your credit score.
But, you may have heard that checking your credit score will actually lower it.
Is this true? It comes down to the difference between a soft credit check and a hard inquiry? Let’s learn about both and decide if you can knock points of your credit score by checking it too often.
What is a Soft Credit Check?
A soft credit check is one that doesn’t impact your credit score.
Soft inquiries can occur without your consent, and this is often when a:
+ Background check is initiated
+ Preapprovals for a loan are granted
When a soft credit check is conducted, it may show up on your credit report, but the check will not cause a negative impact on your score. A soft credit check is when someone is trying to check your credit worthiness.
The key most important factor behind a soft check is that the person is not actively searching for financing.
A person checking their own credit score is conducting a soft credit check. The person can view their credit score, and they’ll be able to view revolving credit accounts and information.
But the person isn’t attempting to take out a new loan, so there’s no risk of their score being negatively impacted. You’re simply checking the credit score and not applying for a new loan that will change your open credit balance and put lenders at a higher risk of open credit.
What is a Hard Inquiry on a Credit Report?
Hard inquiries will slightly impact your credit score, lowering it in the process.
The impact is minor, but it will still be reflected in the score. This means that your 750 score may now be 748 or so – not a major difference.
When a hard inquiry is made, this means that an in-depth credit report has been requested.
These requests come from financial institutions. For example, you’ve applied for a mortgage loan. Hard inquiries will occur during the final loan approval to:
- Lower lending risks
- Inspect credit history
- Understand the borrower’s credit profile
Hard inquiries will indicate that you’ve applied for new credit. Why does this matter? It matters because the credit score you have is dependent not only on your payment history but also how much open credit you have.
For example, if a person has a $10,000 limit and $3,000 in outstanding balance, they’re less of a risk than a person that has $20,000 in open credit, even if they have zero debt on their cards. Hard inquiries show lenders that you’re thinking or have taken out new credit, whether it be for a mortgage loan, auto loan or a credit card.
When Do Credit Inquiries Fall Off?
Credit inquiries will fall off of your credit, too. But each inquiry will take two years before it falls off. The good news is that the inquiry only really impacts a credit score for the first year after the inquiry was made.
The impact will start to decline during the first year, lowering the impact it had on your score.
Keep in mind that this only really comes into the equation when you’re applying for:
- Credit cards
- Auto loans
If you’re not attempting to take out more credit, the inquiry is not going to impact your credit. I want to note that a lender can pull a credit report for a certain number of days, often a month or two, after the initial inquiry.
For example, let’s assume that you applied for a mortgage 10 days ago, but you want to shop around to find the best deal. Another lender can pull the same credit report, allowing you to avoid a potential negative drop in your credit.
By law, a person has the right to check their own credit report. You are allowed to secure a free credit report annually, and if you’re the one checking your own report, this means that it’s not legal for the report to have a negative impact on your credit.
There’s no way to avoid hard inquiries when applying for a loan.
Multiple inquiries, in a certain time period, may all be lumped into one score, as mentioned above. This method allows you to shop for the best loan without having to fear that you’re destroying your credit in the process.
Credit bureaus will often recognize that you’re comparing rates and will allow you to “shop” for the best deal for a period of 14 – 45 days, depending on the bureau.
When you want to apply for a loan, mortgage or credit card, it’s good practice to check your own report prior to applying. The goal is to find out your own credit score so that you can shop for a loan that’s the best fit for you.
You might not want to apply for a low interest mortgage loan that requires a 700+ credit score when your score is 610. Inquiries that have no chance of approval will still harm your credit score, and they can be completely avoided if you do your own due diligence prior to applying for the loan.
If a hard inquiry was made on your report, you can fight the inquiry if it was made without your consent.
Hard inquiries are only allowed to be made when you have consented to them. You can call the creditor to fight the claim or contact the credit bureau to ask for the item to be deleted from your report.