Does Credit Check Affect Credit Score?

I am sure you have realized that when you are applying for a loan or a credit card, the credit reporting agency will pull your credit and this pulls your credit score down. This has left many people avoiding the process of checking their credit lest it also have an impact on their credit scores. However, taking credit reports from your credit references does not affect the scores negatively or positively or in any lower way if taken periodically. Here is an overview of the different credit checks and the impact they can have on your credit score.

Soft Credit Checks

A soft credit check also known as a soft credit inquiry or soft credit pull is a check by you or a business on your credit report or score. Soft checks have no impact on your credit score, and the records will not be available to the credit-reporting companies where lenders source their data.

Some examples of soft pulls include:

• Using the free annual credit report or other available credit monitoring services. This enables you to track your reports and be able to identify any errors or suspicious activities.
• Companies that run your credit to offer credit cards to you based on your credit score. This may then result in a hard inquiry after accepting these offers.
• Gauges by existing creditors to decide whether to increase your credit limit or intimate proposals or offers of credit.
• Businesses conduct employment background checks, rental background checks, or utility background checks to decide on deposits.

Since you have agreed to allow these soft pulls, they do not affect your credit mark or score in any way. Moreover, it is recommended to check your credit reports regularly as this helps to identify eventual issues.

Hard Credit Inquiries

A hard credit check or hard credit inquiry is a type of credit check done by a company to either accept or reject an application for a new credit or other services. Some of them include applying for credit cards, auto loans, mortgages, and any other line of credit. Hard inquiries can reduce your credit score by a few points and stay on your credit report for 12 months, or in some cases, longer for mortgages and student loans.

Multiple hard inquiries within a short time can indicate increased credit risk and affect the score more significantly. Still, several inquiries made by auto, mortgage, or student loan lenders within a set focused shopping time frame are considered one inquiry. This lets you compare rates without too much damage to your scores.

The effect of hard inquiries differs but ranges from a score decrease that is equal to less than 5 points if the borrower had no problems with credit. Even if it lowers scores slightly, one must rate shop to pocket big money on major loans. A lower score that saves 0.5% interest over the life of a 30-year $250,000 mortgage saves $15,000 in interest, offsetting the temporary score drop from inquiries.

Avoid Unnecessary Hard Checks

To minimize hard inquiries:

• Do not accumulate credit cards and loans, but apply for credit only when required. This affects the credit utilization ratio, credit mix, and the length of a credit history since the account age will drop drastically.
• Shop for rates within a short time frame of 14 to 45 days to minimize the effects of inquiries, and compare the APRs and fees of the lenders before applying.
• Do not accept pre-screened offers of credit cards and insurance to eliminate promotional inquiry effects. This also minimizes pre-approved credit mail theft threats.
• Approach each personal finance decision cautiously and avoid applying for credit accounts you do not need. Please remember that requests for student loan refinancing, rental, utility, or employment are inevitable for many.

The Takeaway

You can check your credit history without damaging your credit score. However, applying for new credit accounts can lead to the production of hard inquiries which in turn can reduce scores for some time. Minimize the number of hard inquiries by only applying for new credit when shopping for rates. Use your free annual credit reports and get enrolled in credit monitoring to check your scores regularly without violating the rules. Regular monitoring of your credit prevents you from falling victim to any errors that the credit reporting agencies make while mitigating the small risks associated with hard inquiries that occur from time to time.

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