How Do Hard Credit Checks Affect a Credit Score?

Types of Checks

There are two types of credit checks: soft and hard. Soft credit checks are also known as involuntary credit checks, such as when a credit card company checks your credit before sending you pre-approved applications. Soft credit checks also include any other type of credit check that is not performed for the purpose of applying for a line of credit, such as if an employer runs a credit check to verify identity or when you request a copy of your own credit report. A hard credit check is when you voluntarily agree to a credit check to gain additional credit, such as when you fill out a loan application.

Negative Scoring

Hard credit checks can negatively affect your credit score, especially if you have multiple hard credit checks spread out over a regular period of time. When multiple hard credit checks appear on your credit report, they serve as a warning to creditors, because it appears that you are trying to apply for too many lines of credit. According to the credit bureau TransUnion, multiple hard credit checks send out the message that you are a high-risk credit applicant because you could be trying to borrow more than you could pay back and overextending yourself. Hard credit checks only negatively affect your credit score when they are spread out and appear to be a normal occurrence. If multiple hard credit checks appear all at once, such as if you filled out multiple loan applications to find out the best interest rate, they will all be combined into one hard credit check.

Prevention

Hard credit checks will stay on your credit report for about two years, so if you are constantly filling out loan, mortgage or insurance applications, it will keep your score lower. There are some companies that may perform hard credit checks when you are not filling out a loan application or a line of credit. Many cell phone companies perform hard credit checks, as do banks and cable companies, so it is important to carefully read all company privacy policies before signing any type of contract.