Your credit score is a number that represents your creditworthiness in the eyes of lenders, or the likelihood that you will pay them back on time and in full, and is a part of your larger credit report. The higher your credit score, the less of a risk you are to lenders. The six factors that affect your credit score are payment history, credit unitarization ratio (how much you owe right now to lenders and creditors), credit history length, credit mix, new credit, and credit inquiries.
Let’s look at that last factor on the list: credit inquiries.
Hard vs soft inquiries
A hard credit inquiry, or credit check, occurs when you apply for new credit. This could be a mortgage, a car or personal loan, a business loan, or a new credit card. Every hard inquiry is considered a risk and so it affects your credit score by lowering it. Think of it this way: every application for new credit is a chance you’ll take on too much debt and not be able to pay it back.
A soft inquiry occurs when someone you authorize checks your credit report and score without the potential or intention of adding credit or debt to your financial situation. Soft inquiries don’t impact your credit score because they aren’t an indication of you taking on greater financial risk, i.e., more debt.
Why a soft inquiry might occur
- You check your own credit
- A current creditor or your financial institution (bank or credit union) checks your credit
- You apply for preapproval of a credit card, mortgage, or other type of loan
- A credit card company wants to send you a pre-approval offer
- Opening a bank account and renting an apartment—the company may be able to make a hard or soft credit check, so be sure to ask they make a soft inquiry so it won’t affect your credit score
- An employer runs a background check
You can check the inquiries on your credit report
You’re not in the dark when it comes to knowing who is checking on your credit report, with hard or soft inquiries.
You can review all inquiries on your credit report. Every twelve months, you are entitled to one free copy of your credit report from each of the three major credit bureaus, Experian, Equifax, and TransUnion. A wise way to keep tabs on your credit report is to request your free copy from one of the bureaus every four months. Keep in mind that your credit report from the three bureaus could list different inquiries based on which report the company checked with.
If you see a hard credit check on your report that you don’t recognize, contact the company that initiated it and possibly the bureau reporting it. It could be a sign someone is using your credit and identity to apply for credit.
« Return to "Loan & Credit Management"