Many consumers have the perception that checking your credit always hurts your credit score. In reality, some types of credit checks can hurt your credit slightly, while other inquiries have no impact. Understanding the difference between hard and soft credit inquiries can help you avoid damage to your credit score.
Hard vs. Soft Inquiries
When it comes to inquiring about your credit, a hit or inquiry comes in one of two forms. Some hits are considered soft inquiries, while others are considered hard inquiries. A soft inquiry is one in which you are not trying to obtain credit. For example, an employer credit check is one type of soft inquiry. A hard inquiry involves applying for some kind of credit. For instance, when you apply for a new credit card, this is a hard inquiry.
Why Hard Inquiries Are Important
When you apply for credit, this can lower your credit score because it could indicate financial trouble. According to the University of Connecticut, people with six or more credit inquiries are eight times as likely to file for bankruptcy. If you have financial problems, you may be more likely to seek out credit. Because of this, the credit bureaus look at several hard inquiries as a negative.
Multiple Inquiries
A single hard inquiry can lower your credit score by one to five points, according to Bankrate.com. When you shop around for the best interest rate, the credit scoring model typically only counts that as one inquiry. For example, the FICO system disregards any credit inquiries within 30 days of getting a mortgage. This means that if you simply shop around for the best rate on a mortgage or auto loan, it should not hurt your credit.
Considerations
When you apply for credit, the hard inquiry stays on your credit report for two years. Depending on the credit scoring model, the credit inquiry may be visible for longer than two years. If you are not shopping around for the best rate, getting multiple hard credit inquiries can hurt your score. Try to bunch your credit inquiries together within the same month instead of spreading them out over a longer period.
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