Anytime you apply for credit be it a credit card, car loan, mortgage, or even a cell phone, the company will pull your credit report to help them decide whether or not to extend credit to you. This leads to another thought-provoking question – is my credit score reduced just because lenders are able to access my credit report?
The short answer to this question is: No, getting your credit report run by potential lenders does not influence your score negatively. When a lender checks your credit report it is referred to as a soft pull, and soft pulls have no effect on the score. While hard inquiries, which are made when one actually applies for an account with a credit company, can reduce your score by a few points for some time.
Why Credit Checks Don’t Affect Your Score
If you have inquiries about your credit report, lenders can distinguish between a soft and hard inquiry. Nevertheless, only the hard inquiry is taken into account when calculating the credit score. This is because:
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A soft inquiry is best because it indicates that you are only inquiring about credit and not actually, applying for it. There is no additional debt or risk that is being assumed and therefore it does not have an impact on your score.
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Hard inquiries suggest that you have received approval for a new credit line, thus elevating your risk status. New credit accounts also affect the average length of credit history which will always bring down your score.
- Your score looks for rate shopping. When you apply for multiple auto loans or mortgages in a short time, it is considered as a single inquiry and not many. This helps to stop your score being artificially raised because you are a careful and rational consumer.
- However some sources have cited that when you run your own credit report or when creditors pull your report frequently, your score may drop and this is a myth. Soft inquiries that emanate from prequalification checks or inquiries that you make on your credit reports do not harm your credit score unless you are opening new accounts.
Consumer Credit Checking: The Reasons Why Consumer Check Their Own Credit
It is a responsible behavior to regularly check your credit report. Here are some great reasons to check your own credit reports from time to time:Here are some great reasons to check your own credit reports from time to time:
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Identifying fraudulent transactions – Credit reports may include some errors or omissions. Challenging mistakes can help raise credit scores. This is made easier by staying on top of your reports.
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Fraud detection – Credit card fraudsters may apply for credit cards using their victim’s identity. Doing this makes the type of activity easy to detect when you check progress of your reports frequently.
- Monitoring progress – This is especially useful when starting the process of credit enhancement to track the effectiveness of implemented actions.
In conclusion, it is safe to state that there are many advantages and no disadvantage with regard to the frequency of personally monitoring one’s credit reports. It is a sound economic strategy.
When Shopping For Credit is Actually Good
Thus, the active search for credit is not only safe in terms of credit rating but it can even have positive effects if done properly. It is risky to apply for several credit accounts within a short period as it is regarded as a negative activity that can lower your score. However, when rate shopping for major loans, it is necessary to consult with different credit organizations.
Here are some tips for smart credit shopping:Here are some tips for smart credit shopping:
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The type of loan and terms you want – Take your time and do your research before you start applying for loans. Not having a clear goal when shopping just leads to more questions when one jumps from store to store.
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Focus your shopping – Attempt to apply to all desired lender in 30-45 days. So long as concentration is maintained, multiple inquiries are usually counted as one.
- Limit applications – Despite the fact that it is important to compare rates with different lenders, applying to numerous lenders is equally dangerous. Limit lenders and avoid applying for credits with many lenders since this will result in many knocks.
Here is what I have found, running your credit will not harm you in any way as long as you are looking at your own credit report and do not apply for any credit. The use of credit can be score-neutral even to apply for credit as long as it is done in bulk for major credits such as mortgage or auto loans. Thus, be smart, do not make to many hard inquiries and soft inquiries are not a problem at all.
