You have three main credit reports, maintained by bureaus called TransUnion, Equifax and Experian. The Federal Reserve Bank of San Francisco explains that these reports contain records of all your credit activities. People and companies who run full reports can see information like your accounts, balances and payment histories. Reports are run for various reasons, and sometimes this affects the person's credit score.
Definition
Consumers can run their own credit reports to check them for mistakes and possible fraud. The Federal Trade Commission explains that consumers can get one free copy from each bureau through annualcreditreport.com every year. Lenders and others with valid reasons for running credit reports can also request reports. Generally this happens in response to a credit application, although creditors sometimes view current customer reports when considering credit limit increases or other offers. Banks, insurers and similar companies can buy information based on credit reports to make pre-screened offers to certain qualifying people.
Types
Credit report inquiries are classified as either "soft pulls" or "hard pulls," according to the Lending Tree borrowing website. A soft pull, or soft inquiry, happens when a person's current creditors run a report or companies pre-screen for financial offers like low interest credit cards or insurance policies. Consumer requests for their own reports are also considered soft pulls.
Hard pulls occur when someone fills out an application for a credit card or any type of loan. Lending Tree states that some banks also run reports on people who open accounts.
Effects
Soft pulls do not affect a person's credit score at all. Most hard pulls are visible to anyone who runs a credit report for a year from the inquiry date, according to Federal Reserve Bank of San Francisco, while employment-related pulls show up for two years. Lending Tree warns that hard pulls can lower a person's credit score by up to five points, and the impact lasts for about six months. This may not harm someone with high credit ratings, but a few points can make a difference for those with borderline scores. These individuals could be turned down for a loan or required to pay higher interest.
Warning
Lending Tree warns against being drawn into applying for credit to get free gifts or a temporary low interest rate. The credit score impact is often not worth the incentive for opening an account, especially when a person plans to apply for a major loan, like a mortgage, in the near future.
Considerations
FICO states that most lenders understand that consumers shop around for certain loan types, like mortgages and vehicle loans, and that consumers may apply with several companies within a span of a few weeks when buying a home or car. FICO treats a number of report requests from similar lenders within a short time as one inquiry, which lessens the impact to the credit score .
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