Know the effects of someone “pulling” your credit.
You’ve probably heard the term “inquiry” before and you may be wondering exactly what that means and how it affects your credit score. If you want to maintain a healthy credit score it is imperative that you understand how inquiries work. Not only do they affect your credit score in a potentially big way, there are also different types of inquiries and knowing the right questions to ask when you’re applying for credit can help you save points when considering credit or loan applications.
An inquiry occurs each time a potential creditor looks at your credit report. This is more commonly referred to as, “pulling your credit”. When this occurs there are two different types of credit checks: a “soft inquiry” and a “hard inquiry”. The difference between these two types of inquiries is that a soft inquiry doesn’t affect your credit score where a hard inquiry does.
A soft inquiry is an solicited inquiry that is done without your permission, but it does not affect your credit score. To further explain, when you receive a credit offer in the mail, the company that sent it to you did a soft inquiry to determine whether or not you are possible candidate for their services. This is done to help them ensure that they are marketing their products to the right people. **WARNING**This does not mean that you will qualify for any credit offer you receive in the mail. You will still want to use a careful approach when applying for credit.
A hard inquiry on the other hand affects you much different. In this case you’ll actually lose 7 points on average! Now, that may not seem like it is that much, however, you’re going to lose those points from all 3 bureaus! AND you’ll have to spend the next 2 years recouping those lost points. Can you see how these inquiries can potentially add up very quickly and reek havoc on your score for a pretty significant chunk of time?
Now that you know a little bit more about inquiries, you might be wondering, “why on earth does it hurt my score so much when people look at my credit!?” In order to really understand this, you have to put yourself in the shoes of the individual/institution that is taking into consideration whether or not they should loan you money or issue you credit. The best way to do this is to think of it on a much more personal level. Imagine your friend Bobby comes and asks you if he can borrow $500 from you. You tell him you’ll think about it. You tell your friends Sally and Jared at lunch the next day that Bobby asked if he could borrow some money from you. Turns out, Bobby asked Sally and Jared if he could borrow $500 from each of them too! Bobby might have a good reason for needing the money, but he also appears to be desperate. This may lead you to question whether or not you should loan Bobby the money out of fear that you might not ever see it again.
Inquiries are a relatively small blemish on your credit report. However, too many of them can get out of hand quickly. You should always take into consideration each time you have credit pulled if it is worth it to your overall credit score. It is ideal to have 0-3 inquiries on your credit in a 2-3 year timespan. Anything more than that you should probably take into closer consideration before applying.