How your credit score is affected by physical and material inquiries
If you were to check your credit report now, you would likely see a list of inquiries. Before you panic about the impact they might have on your credit score, it’s important to know that there are two types of credit inquiries – hard and soft – and each affects your credit score. credit differently.
Here’s what you need to know about the different types of credit applications and how you can avoid damaging your credit score. You can also check your credit with Credible Experian’s partner to see where you are and what areas you can address to improve it.
WHAT IS CREDIT TRACKING AND HOW DOES IT WORK?
How are hard and soft credit checks different?
With a few exceptions, lenders thoroughly investigate one or more of your credit reports when you submit a credit application. This could be for a home loan, an auto loan, a private student loan, or a credit card. The key is that you must authorize the lender to perform the credit check.
In contrast, a soft investigation can take place with or without your permission. For example, if you submit a prequalification request for a personal loan so that you can compare rates, that is an indirect request. Additionally, if a lender uses your credit to send you a pre-approval offer in the mail, that is also an indirect request.
Minor inquiries will be listed on your credit reports, but they will not affect your credit score because they do not indicate that you are applying for credit.
Even when you check your own credit reports – which you can do through Credible’s partner, Experian – it’s just a simple request.
DO YOU HAVE BAD CREDIT? HERE’S WHAT YOU CAN DO TO HELP REPAIR IT
How will my credit score be affected by a serious credit investigation?
According to FICO, each new serious request usually results in a loss of less than five points in your credit score. And while serious inquiries will stay on your credit reports for two years, they will only affect your FICO score for 12 months.
However, there are some things you should keep in mind.
First, FICO views difficult inquiries differently when looking for certain loans, including mortgages, auto loans, and even student loans. If you are applying to multiple lenders so that you can compare rates, FICO will not penalize you by counting each claim against you.
Instead, as long as you do all of this within a short period of time – usually between 14 and 45 days – the credit rating company will combine all of the requests into one for rating purposes. Note, however, that this does not work for credit cards.
Second, while reapplying for credit won’t have as much of an impact on your credit score, requesting multiple accounts over a short period of time can have an aggravating negative impact. And it’s not the same as shopping because you’re actually trying to open multiple accounts.
Therefore, it is best to avoid applying for multiple credit accounts in a short period of time.
Finally, serious inquiries can affect your credit score differently whether you have a high score versus a low. If there’s a lot of other positive information on your credit report from years of good credit management, a new credit check may not hurt you too much.
You can check your credit through Credible without negatively affecting it to see how inquiries affect your score.
IS IT WORTH TO PAY FOR CREDIT TRACKING?
The bottom line
Maintaining a good credit rating can make a huge difference in your financial situation. It will be easier to get credit approved when you need it and on favorable terms. It can even help you get lower insurance rates.
While you can’t remove legitimate inquiries from your credit score, try to space your credit inquiries to avoid damaging your credit score too much. However, this does not apply when shopping in a short time.
Some credit monitoring services will also provide you with information and tools that you can use to develop your credit. For example, Experian Boost allows you to add your utility, phone, and streaming service payments, which can help boost your credit score. If you want to learn more about credit monitoring, you can visit Credible.
5 BENEFITS OF HAVING A GOOD CREDIT RATING
Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.