Do Credit Checks Affect Your Credit Rating?

A positive credit history generally leads to increased access to credit. Consumers with good credit scores may receive an abundance of preapproval offers in the mail for credit cards, personal loans or automobiles. However, each time you complete a credit application or return an inquiry, your credit score is pulled, which affects your credit rating.

New Credit

Anytime you open a new credit account, your credit score is pulled. Creditors review your score to determine whether you are a high-risk or low-risk borrower. Low-risk borrowers typically have high credit scores. High-risk borrowers have low credit scores due to mismanagement of past debt. Creditors set interest rates and fees based on the level of risk of each consumer. For example, a customer with a bad credit rating may be required to pay a security deposit whereas a customer with good credit is not.

Responding to Notices

A lender may send you a prequalification or preapproval notice for credit, but your credit must be checked prior to your final approval. Credit scores are updated monthly and can change dramatically within this time frame. Lenders understand this fact and pull your credit following a preapproval application to obtain the most current information available on your credit score. Be selective in the companies you authorize to check your score so you can limit the number of inquiries on your credit.

Inquiries

Each time a creditor checks your score, your credit score decreases. However, the inquiry must be initiated through a voluntary application for credit. Companies that request your credit score to solicit your business do not cause harm to your credit score. "Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time," explains MyFICO.com.

Considerations

If you are unable to avoid applying for new credit, you can offset the drop in your score using the five main areas that affect your credit. Those factors include: your payment history, amount owed, length of credit history, types of credit and new credit. Payment history and the amount of your current debts are two of the largest categories impacting your credit score. When you want to give your credit score a boost, making adjustments in these areas is best.