What is a credit inquiry? It is the process of verifying your eligibility before the creditor agrees to approve your request. The inquiry can be soft or hard.
Let’s have a closer look at these two types of credit verification and learn more about the consequences.
Does Checking Your Credit Score Hurt Your Credit?
Your credit can be checked by a crediting institution, your landlord or you can check it yourself. Generally, the credit rating of each consumer depends on various factors such as on-time debt payments, debt utilization rate, the length of the credit history, and the presence of any derogatory marks on the reports. Each of these categories affects your ability to qualify for credit products in the future.
If you decide to check your credit, it won’t lower it. Moreover, each consumer is advised to request a free report each year and check it for any errors. But if a lending company or some other service verifies it with a hard inquiry, you may get your rating lowered by a few points.
So what is the difference and how to make the right choice?
What Is a Soft Credit Check?
Such checks are visible only to the consumer. Some credit reporting bureaus place this information on your credit reports while others don’t. Consumers can be sure that a soft inquiry won’t affect their credit or do any harm to it. It is performed for background verification. Some companies, service providers, landlords, and even employers conduct this pull when they need to check the consumer’s background. Such pulls aren’t connected to a certain credit application, so they aren’t visible to anyone except you.
Examples of soft credit pull:
In other words, this inquiry should be performed with the permission and consent of the consumer or without it.
Is it bad to check your credit score? No, it’s smart to do so as you may find some errors or just verify that all the details are correct. If you need to be preapproved for a certain loan, credit card, mortgage, or to apply for a job, this inquiry won’t do you any harm.
What Is a Hard Inquiry On a Credit Report?
The majority of financial service providers and creditors conduct a hard credit pull before they make any lending decision. Of course, they have a solid reason for that as if you can’t repay the debt on time they risk losing their money.
How many points does a hard inquiry affect credit score? It usually takes just a few points off your credit which is not much provided that you only have it once in a while. If you have multiple inquiries over a short time frame, it might lower it significantly.
How long do hard inquiries affect credit score? They won’t lower it for long if you’ve given your consent and you have a single loan application. Experts advise not to apply for numerous credit cards or loans over a period of several months as it is really harmful to your report.
Examples of hard checks:
How long does a credit check take? It is conducted very quickly and won’t make you wait. Creditors perform it to verify your background and make sure you will be able to repay on time.
So, a hard pull can cost you a few points and can be conducted only with your consent. Otherwise, you can dispute them.
Why Does Your Credit Score Drop When You Check It?
It may be a smart decision to check your credit report from time to time to eliminate any errors or identity theft. If you have any concerns you may discuss your questions with the Consumer Financial Protection Bureau (CFPB).
It is necessary to verify that nobody has conducted hard pulls without your permission. Otherwise, it can be a sign of identity theft.
How to Check Credit Score Without Affecting It?
You can take advantage of checking your report when you shop for the best terms and rates on a mortgage or another type of credit. For example, you can enjoy a 30-45 day grace period from FICO during which you may conduct several inquiries that won’t come on your report. They will be considered as a single pull and you can utilize this time frame to search for the most suitable rates on certain lending solutions.
All in all, having strong credit is essential for your financial stability. Make sure you build your credit so that it’s high enough to apply for various lending products and obtain the most affordable rates.
Check your report regularly to make sure there are no errors.