Checking your credit score registers an inquiry on your credit report every time. Whether or not the inquiry affects your credit score is dependent on the classification of the inquiry, which is either a soft inquiry or a hard inquiry. This classification is based not only on who causes the inquiry but also on the reason for the inquiry.
A soft inquiry does not affect your credit score, whereas a hard inquiry reduces your credit score. For proper management of your credit score, it is important that you understand the differences between these two inquiry classifications, particularly the impact they have on your credit score.
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Definition of a soft credit inquiry
A soft credit check does not impact your credit score. According to the U.S Small Business Administration (SBA), soft inquiries happen when someone else checks your credit report for promotional purposes.
For example, a soft credit check is not directly involved in a credit application. When a lender or credit card issuer runs a background credit check, they might do it without your consent to ascertain your creditworthiness, but it’s a soft inquiry. When you run a personal credit inquiry, it doesn’t impact your credit score either, so it is also a soft inquiry. Although soft inquiries don’t affect your credit score, they are still visible in your credit report.
What does a soft credit pull show?
A credit pull reveals information about your credit history. It shows your loans, lines of credit, and all of the details that these entail such as your payment history and collection amount.
This information can be used to analyze your creditworthiness. As such, credit service agencies often use it to determine whether you’re eligible for a credit. The SBA states that you can perform a credit report check and review once a year through a free credit report agencies like Annual Credit Report.
Does a soft credit inquiry damage your credit score?
No, a soft credit inquiry does not negatively impact your credit score in any way. This is because it is solely for informational purposes and not directly involved in a credit application.
Definition of a hard credit inquiry
A hard credit check, also known as a hard credit pull, occurs when a credit check is directly involved in a credit application. Examples of situations that result in a hard inquiry include credit checks conducted for the approval of a loan, mortgage, or credit card. Typically, you have to authorize any and all attempts to make a hard credit check.
Hard inquiries can be viewed by anyone who has access to your credit report. They can stay on your credit report for up to two years. Unlike a soft credit inquiry, hard credit inquiries lower your overall credit score, and they can also hinder you from getting a line of credit if the result of the pull is not satisfactory.
How many hard inquiries are too many?
There is no rule surrounding how many hard inquiries are too many. The effect of multiple hard credit checks on your credit score depends on numerous factors that are specific to your situation, Like your unique credit history, the lender in question, and the nature of the multiple hard inquiries.
If you accumulate multiple hard inquiries within a short period, this increases the risk you pose as a borrower. As such, your credit score will likely be significantly affected. The negative impact on your credit score in this case may take longer to dissipate, although the effects become less impactful with time.
If your payment history is consistent and impressive, it may help reduce the effect of multiple hard inquiries. Sometimes, what matters most is that you’re able to return your credit.
Ultimately, each lender decides how many hard inquiries are too many. Most lenders set a maximum number of inquiries that they deem acceptable, and they may not approve your credit if the number of hard pulls on your account exceeds that limit.
Factors that determine your credit score
A lot of people are concerned about the answer to the question, “If I check my credit score, will it go down?” While the answer depends on your situation, it is important to understand that credit inquiries are not the only factor that affects your credit score. Other factors that may impact your credit score include the length of your credit history, your payment history, the types of credit on your account, whether you recently opened a new line of credit, and your credit utilization ratio.
Length of credit history
This refers to how long you’ve had open lines of credit. Longer credit histories are advantageous, especially you if you have upheld a consistent payment history. So, new credit users may look out for ways to establish and boost their credit.
This is a record of your credit payment over time. If you pay your debts early or on time, you will improve your credit score and boost your creditworthiness. Your payment history accounts for about 35% of your overall credit score.
Credit mix refers to how many types of credit you have. Multiple credits can improve your overall credit score as long as you keep up with your credit responsibilities.
Applying for new credit may result in a hard inquiry. Hard inquiries affect your credit score, and they may lower your score immensely if you open multiple new credit lines within a short period of time.
Credit utilization ratio
The credit utilization ratio measures the percentage of your credit limit that is in use. For instance, if you have a $30 balance on a $100 limit, your credit utilization ratio is 30%. The lower your ratio, the better your credit score.
5 ways to raise your credit score
Your credit score is instrumental in your ability to secure loans and other lines of credit. These five tips will help you build your credit score!
- It is recommended that you check your credit report from time to time. This will help you monitor your progress and identify areas of concern that are in need of improvement. With a Credit Builder Plus®️ from MoneyLion, you can monitor your credit frequently and boost your credit score in no time.
- Pay your debts as early as possible to create good payment history.
- Ensure that your utilization ratio is low. The recommended limit for a healthy credit report is 30%.
- Make sure you absolutely need credit before you apply for it. If you are applying for credit outside of the country, you may need to check which countries have credit scores and what they look like abroad.
- Find out possible reasons why your credit score may drop and pay close attention to these details. Prevention is the greatest cure.
Use a RoarMoney account to improve your credit score
For the health of your credit report, you need to understand the implications of credit inquiries and figure out how to check your credit score without hurting it in the process. Monitoring your credit helps you maintain a good credit score, and using a RoarMoney®️ account will help you better track and budget your money for just $1 per month.