Your FICO credit score ranges from 300 to 850, according to myFICO. Lenders and other credit issuers often offer pre-approvals to consumers as a way to market their products and attract new customers. Such pre-approvals may require lenders to access information in your credit report, so it's beneficial to understand whether such inquiries impact your credit score.
Inquiries
When you apply for credit, the lender will often check your credit by viewing your credit report. This check appears as a hard inquiry on your credit report. According to myFICO, how much new credit you apply for accounts for 10 percent of your FICO score. Hard inquiries remain on your credit report for up to two years and are included in the calculation of your FICO credit score for one year. The more credit you apply for in a short period of time, the more it can damage your credit score. How much inquiries impact your score depends upon the number of inquiries you have and the other data contained in your report.
Significance
A pre-approval is not an application for credit. It occurs when a lender checks your credit to ascertain if you meet their credit criteria. Pre-approvals are often soft inquiries, which means the lender viewed your credit but the inquiry does not impact your credit in any way since FICO does not include soft inquiries in the calculation of your credit score. Credit reports list hard inquiries for credit separately on the credit report from soft inquiries.
Considerations
Under the Fair Credit Reporting Act, insurers and credit card issuers can access your credit reports without your permission. These are considered soft inquiries and are used by the companies to extend you firm offers of credit for their products. You can prevent such companies from viewing your credit file, however. The FCRA allows you to opt out permanently or temporarily for five years. You can do so online at OptOutPrescreen.com, a site established by the credit bureaus in compliance with the FCRA.
Identity Theft
Whenever anyone accesses the data contained within your credit report, either a soft or hard inquiry is left behind. If you notice unauthorized inquiries on your credit report or unfamiliar accounts, this could indicate that your identity has been compromised. If you suspect identity theft, you can contact the credit bureaus and place a fraud alert on your file and dispute any erroneous data. You can also place a credit freeze on the the file, which blocks access to your credit information. You can order one free copy of your credit report each year at AnnualCreditReport.com.
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