Most people check their credit periodically, such as when they’re about to apply for a big loan, once a year, or every four months (like you should). But you may not realize that a whole lot of others are checking your credit – and probably on a more frequent basis. In fact, every time you apply for a credit card, submit an application for a student loan, take out a store discount card, or even apply for insurance or rent a new apartment, your credit is probably being pulled.
Those credit pulls also can ding your credit score, if not handled correctly. Sometimes, that’s inevitable, and other times it’s avoidable. But it’s important to understand the facts about hard and soft credit inquiries, or credit “pulls.”
In fact, only 26% of women and 31% of men know the difference between “hard” and “soft” credit inquires, or credit “pulls.”
So today, we’ll give you some fundamental information about credit inquiries, both hard and soft. Contact Nationwide Credit Clearing if you have further questions about credit pulls, and would like a free copy of your credit report and consultation with a credit expert!
Hard credit pulls:
Hard credit pulls only take place when you apply for new credit accounts.
Or, a hard pull will occur when one of your existing creditors decides to pull your credit. In fact, most creditors can access your credit any time, for any reason they deem, without needing your permission first.
Creditors commonly do this when they’re reviewing your account to consider an increase to your credit line.
Soft credit pulls:
Sofer credit pulls, however, can occur either with inquiries where the consumer voluntarily agreed to have their credit accessed, or other involuntary inquiries.
For instance, soft pulls usually take place when you’re applying for a new job, a cell phone account, trying to rent an apartment, etc.
Effect on credit score:
There is no one set rule for how credit pulls will affect your score. But, typically, hard credit pulls will only have a slightly negative impact on your credit score, possibly dropping your score a few points in the short term.
Typically, your FICO score can go down about 5 points per inquiry if you have your score pulled too much by the wrong vendors. The drop could be greater if you have few accounts or a short credit history without seasoned, positive factors to compensate.
In fact, the negative effect of hard pulls usually last only one year, but most of the damage disappears within the first 90 days.
Are all credit score pulls considered equal?
Since credit scoring is primarily a means of gauging the risk of default, consumers with high credit scores will suffer a little more damage from hard credit pulls. That’s because the credit algorithms consider the fact that they’re getting their credit pulled atypical, and more of a red flag.
So the higher your score to begin, the more damage a hard credit may do.
Additionally, unsecured credit inquiries, like you’ll find with personal credit cards, retail cards, and in-store accounts, will cause the most damage to your score.
When current creditors pull your credit:
We are certain that soft credit pulls have a negligible negative effect on credit scoring – or none at all. That’s the reason why most of your current creditors will only order soft credit pulls on your account, not hard pulls.
Current creditors usually also do a soft pull every month or so, although some check up on their consumers much more frequently.
Some credit pulls always act as hard inquiries, some are always soft injuries, and some can show up as either/or.
Hard pulls are most often found with:
• Applications for new credit cards
• Requests t activate a pre-approved credit offer (such as you receive in the mail)
• Applying for a new cell phone account and contract
Soft pulls are most often found with:
• Background checks by potential employers
• Your bank verifying your identity
• Initial credit checks by credit card companies that want to issue you preapprovals
Who can pull your credit, whether through hard or soft inquiries?
Credit card companies
Financing departments of retail stores
Auto dealerships financing departments
Cell phone companies
Child support agencies
Anyone with “Permissible Purpose,” as deemed by the Federal Credit Reporting Act.
Timing is everything with credit pulls:
Timing is so important when it comes to credit pulls. The more “bad” inquiries that appear on your report within a short time, the bigger hit to your score. For instance, if you apply for five new credit cards within a two-week period, it definitely is seen as risky to the credit bureaus, and your score will drop accordingly.
However, the credit bureaus do account for consumers who want to “shop around” for large and important loans, like mortgages, business loans, etc. Of course, shopping for the best rate on a single loan (not applying for multiple loans at once) means getting your credit score pulled several times within a short period, but the good news is that this practice won’t hurt your credit score.
In fact, the credit bureaus typically just count this group or batch of inquiries as one if they’re within a 30-day period (or a 45-day period with some credit scoring versions).
So, if you’re shopping around for the best rate on an important loan, try to contain all credit pulls to within a 30-day period to keep your score in good order!
Contact Nationwide Credit Clearing if you have further questions about credit pulls, and would like a free copy of your credit report and consultation with a credit expert!