You've probably heard that applying for a loan can affect your credit score. Indeed, many realize that when a creditor looks into your credit in order to make a decision about a credit application, it can have a negative impact on your credit score. The fact that some inquiries into your credit can hurt your score has led to the myth that all credit inquiries can hurt your credit score. The truth is that there are two main types of credit inquiry: “Soft” and “hard.” Only the hard inquiry is damaging to your credit score.
Soft Credit Inquiry
It is important to realize that when you check your own credit report, it will not negatively affect your credit score. Your own inquiry is known as a “soft pull.” It's made in order for you to keep track of your credit activity, and check for accuracy. Since you aren't applying for credit when you are just checking your own report, the credit bureaus and credit scoring models won't hold it against you.
Another type of soft inquiry is that made when companies check your credit history in order to send you “pre-approved” offers. These types of inquiries are known as “involuntary,” since you didn't ask to have your credit checked. So, even though a company might have viewed your credit history and/or score to determine whether or not to send you an offer, these inquiries will not negatively affect your credit score.
Hard Credit Inquiry
On the other hand is the hard credit inquiry. Sometimes these are called “voluntary.” “Hard pulls” result when you are applying for credit or some services. Credit card issuers, mortgage brokers, and other lenders institute a credit request at your behest, and this is reported on your credit history, showing that you are looking to obtain new credit. Many cell phone providers, cable/satellite TV providers and others will perform a hard credit inquiry when you apply for these services.
A hard inquiry can hurt your credit score. However, the harm done is usually relatively small. While credit scoring formulas are kept mostly secret, it is estimated that credit inquiries make up no more than 10% of your credit score. The most important factors are your payment history and the amount of debt you have. However, some lenders become concerned when they look at your credit report and see several attempts to obtain new credit in a six-month period of time. (Although most understand if you have a cluster of inquiries over a few days as a result of shopping around for a low mortgage rate.)
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Reading Soft and Hard Inquiries on Your Credit Report
The credit bureaus don't label credit inquiries as “hard” or “soft” on your credit report. Different language is used:
- Experian: “Requests viewed by others” represents a hard pull. Creditors can see these when evaluating you for creditworthiness. “Requests viewed only by you” represents the soft inquiry. These are credit inquiries that are available for your information (so you can see which companies are checking your credit without your request), but aren't visible to creditors evaluating your credit application.
- TransUnion: “Regular inquiries” are those that are equivalent to hard inquiries. They will remain on your TransUnion report for two years. “Account review inquiries” are the soft pulls made by you or by companies interested in sending you marketing materials.
- Equifax: “Inquiries in the last 12 months” are hard pulls that were performed at your request. “Inquiries that do not display to companies and do not impact your credit score” offers a pretty straightforward explanation of a soft pull. Equifax also has one more designation, unique to the credit bureau.: “Companies that requested your credit file.” This is a list of companies that asked for your file, so you can see who is interested in you. This information is also available to creditors looking to evaluate you, although its impact on your credit score is unknown.
For the most part, if you are responsible with your money and credit decisions, and make payments on time, and avoid applying for a great deal of debt, credit inquiries are unlikely to have a large impact on your credit score.
This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.