You have probably been told that when you look at your credit score, it will change and decrease by some points. That would seem rather strange – how can just looking at your creditworthiness make it the case that you become less creditworthy from the point of view of lenders? In this article, I’ll explain why this occurs and how you can maintain your credit responsibly – that is, without suffering unwanted hits.
What Happens When You Check Your Credit
When you pull your own credit report or your credit score from any of the three major credit bureaus, namely Equifax, Experian, or TransUnion, the bureau from which you got the information has to pull your full credit report, which is known as a hard inquiry. Soft inquiries are different from when lenders pull your credit score to pre-qualify you for pre-approved offers because you have requested your full credit report. This informs the creditors that you are still in the process of looking for new credit lines.
Another downside of having many hard inquiries on a credit report is that it can be detrimental for the borrower if they are trying to get credit in a short time period as it would show lenders that the borrower is having more financial problems or that their credit worthiness is low. Because of this, a hard inquiry normally results to a drop in credit score of less than five points. But, as the point of difference in the scores can be influential in determining your loan terms and interest rates, people try to avoid credit checks wherever possible.
Another factor that helps to understand the extent of the damage from credit checks is the impact of credit checks on consumers and credit scores.
In a study conducted by consumer credit scoring model called VantageScore, it was found that in the credit files with at least one hard inquiry, 48% of the consumers had their scores altered by 5 or less points. And as for the overall perception of video gaming, over eight in ten people observed very small negative change of 25 points or less. However, younger consumers with less credit history were observed to be experiencing slightly higher declines.
Ideally, for the majority of individuals, a single HA will cause a minor drop in your score, and it is usually reflected for 12 months or less before it is eradicated from your report. Placing multiple orders for the reports in a short time period has a greater impact because you are seen as credit shopping. Excessive hard inquiries within a short span of time can scare lenders.
How often can you check with minimal erosion of the structure of the game?
It is common for consumer advocates to suggest getting your credit reports from each agency at least once per annum to look for inaccuracies and signs of identity fraud. The federal law also requires AnnualCreditReport. com to offer free annual checks. By checking only one report every four months or checking various bureaux in a rotational manner, the frequency of hard inquiries and score effects is also reduced.
While we’re on the topic of free credit scores, some, like those offered by credit card companies, use ‘soft’ pulls that don’t hurt the score and, nonetheless, only offer the bare number. For your credit details, it is necessary to agree to the hard inquiry if you need your credit history. You just do not want to get more new reports too often.
Preventing Your Credit Score from Falling Due to Hard Inquiries
If you need to check your score more often when undergoing major finances changes - e. g. seeking preapproval for a mortgage, buying a car, or comparison shopping credit cards - consider these tips to reduce excessive hard inquiries:If you need to check your score more often when undergoing major finances changes - e. g. seeking preapproval for a mortgage, buying a car, or comparison shopping credit cards - consider these tips to reduce excessive hard inquiries:
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Be clear that you only allow lenders to conduct soft credit checks for pre-qualification. This enables you to compare rates without much concern for scores and save hard checks for the actual application.
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Limit comparison shopping to a compact time frame of two weeks. Concerning rate shopping, credit scoring models acknowledge that they usually involve multiple inquiries within a short period. So long as it is not the kind of thing which indicates a continuous and constant state of disorganization and aimless searching, then the worst can be avoided.
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Tell lenders not to bring queries they do not intend to fund. Applicants are not denied access to lenders, yet, some may only resubmit your application but may only conduct the hard inquiry if you fulfill the approval criteria. This avoids unnecessary dings.
- Read reports more often but do not order new hard inquiries as often. Looking at the same report day in day out is not going to harm your credit score provided you do not transact into generating new hard credit inquiries.
Thus, while checking your credit does give insight – awareness is key to being able to qualify for better loan products. As it is with any other valuable knowledge, moderation is key when it comes to consuming it. It is also important to be strategic about when you choose to accept that difficult credit check. It has to be done often enough to pick up changes, yet not so often as to overwhelm with data. That way, you can gain the visibility you want without risking the extra, long-lasting score drop that comes with it.
