Do Credit Checks by Lenders Affect Your Score?

Credit checks by prospective lenders can and do affect your credit score -- but the degree to which they do depends on your existing credit history. According to the Fair Isaac Corporation, the damage a credit check or "inquiry" inflicts on your score is worse if you apply for several credit cards in a short period of time than if you're simply rate-shopping for a single loan.

Soft vs. Hard Inquiries

Soft inquiries can show up on your credit reports -- but they're for your eyes only. These inquiries have no effect on your credit score and aren't accessible to prospective lenders. An example of a soft inquiry is when you order your own credit reports from the three credit bureaus: Experian, Equifax and TransUnion. Hard inquiries, on the other hand, are reflected in your credit reports for lenders to see. These occur when you apply for new credit cards or a loan and give a prospective lender express permission to view your credit history.

Credit Score Basics

TransUnion, Equifax and Experian report different data in your credit history and each have different methods of calculating your credit score. But it's your FICO score to which most lenders defer. This number is derived using scoring methods developed by the Fair Isaac Corporation, and it ranges from 300 to 850. FICO attaches more "weight" to certain types of credit-related information in your credit history than others. The number of hard inquiries reflected in your reports accounts for 10 percent of your FICO score.

Effect on Score

Generally speaking, a credit check by one lender has a negligible effect on your FICO score. Fair Isaac Corporation indicates that for each additional hard inquiry, your score will likely drop by fewer than five points. This is measured against your overall credit history, however. If you haven't been using credit very long or have few open accounts, hard inquiries are likely to have more of an impact. When authorized for purposes of rate-shopping for a single loan -- such as a mortgage -- hard inquiries generally have no effect on your score, as long as you limit the period of time during which you shop. The Federal Citizen Information Center suggests shopping for loans over no more than 30 days at one time to protect your credit score.

Other Credit Score Hazards

Credit checks you authorize can lower you score -- but a history of slow- and no-pays and shouldering too much debt can ding your score even worse. Your payment history and the amount of debt you owe compared to your available credit limit make up 65 percent of your FICO score. Improve your credit score by paying bills on time and keeping balances on your credit cards low. Apply for a new credit card or loan only when you absolutely need it.