Your credit score is an extremely important number. A good credit score can have an effect on your ability to get a loan, how much interest you will pay, your ability to rent a house or an apartment, or even get a job. But did you know that the simple act of having your credit score pulled too often can have a negative impact on your credit score? Too many hard credit pulls can be seen as a sign by lenders that you may be borrowing too much money and are at risk for not being able to pay back your loans.
A credit pull (also known as a credit check or credit inquiry) is when you or someone else accesses your credit history. But not all credit inquiries have the same effect on your credit score. There are times when pulling your score has no effect on your credit score. Why the difference? It depends on why the credit inquiry is made. There are two types of credit pulls, hard credit pulls and soft credit pulls.
Soft credit check vs. hard credit check
A soft credit check is one that does not affect your credit score. A soft credit check is recorded in your credit history, but is only visible to you and not visible to lenders. You can check your credit report and score as often as you want with no negative effects on your credit score. Some examples of soft credit inquiries are:
- Credit score and credit reports you request for yourself.
- Pre-approval credit checks done by credit card companies and mortgage lenders. (You know that junk mail you hate to receive? Lenders who send out pre-approved loan applications do a soft credit check to find potential customers in a certain credit score range. If you apply, then a hard credit check is made to verify your score).
- Routine credit checks by your credit card or insurance company to review your current credit situation.
- Pre-employment screenings by potential employers or for a security clearance.
- Identity verification when opening a new bank account (note: some institutions do a hard credit inquiry).
A hard credit check is one that can negatively impact your credit score. These occur when you give a lender permission to check your credit history with the intent to open up a new line of credit. Each hard credit check can cause your score to drop by roughly 5 points and can affect your score for 6 months to a year. The hard credit pull is visible to anyone and will remain on your credit report for up to two years. The good news is that hard credit pulls are almost always voluntary – i.e. you are applying for a new line of credit and give permission for the credit inquiry to happen.
The reason your credit score will drop is that the more money you have access to through loans, the more difficult it is to repay. That is why your available credit is part of your credit score.
Some examples of hard credit pulls occur when:
- You apply for a credit card.
- You apply for a mortgage, auto loan, HELOC, or other loan.
- Opening a new bank account at certain institutions.
- Opening a new cell phone account.
Be careful when checking your credit score or applying for credit
Because too many hard credit pulls can lower your credit score, you should only get a hard credit pull when necessary. For example, when shopping for a car or looking for a house, don’t let every loan officer pull your credit score to tell you how much your payments will be. It is best to pull your own credit score (which counts as a soft credit pull) and ask them to run a preliminary check with your numbers. The loan officer should be able to give you an unofficial number based on your score and you can have them run the official numbers if you decide to take a loan out through them. Just be careful and don’t let them pull a bait and switch on you!