The information creditors use to make a decision on your application is generally made up of credit score and credit report. These records indicate your history of handling credit, and how committed you are to making loan or credit repayments on time. Many employers and landlords also use this information in order to get a better understanding of who you are as a person. While many of us understand the details which contribute to our credit score, why does checking your score lower it?
Well, it often does and it often doesn’t; it depends on what type of inquiry is made and, generally, from whom.
Where a FICO score is concerned, your credit score is made up of different factors which contribute to your overall score. A portion of your score is the number of inquiries made by companies into your history of credit. These are called hard checks. In contrast, if you check your own credit score in order to monitor your creditworthiness, this is called a soft inquiry. A hard inquiry will affect your credit score, while a soft inquiry will not.
Hard inquiries are those made by institutions such as banks, mortgage companies, landlords, prospective creditors, existing creditors and anyone with authority to do so under the Fair Credit Reporting Act. Many debt collection agents also have the right to access your credit score, which means that if you have a lot of outstanding debt you are avoiding, your score will continue to go down with each inquiry made.
The same goes for an individual who applies for multiple credit cards or loans in a short period of time, unless it is means shopping around for auto finance or mortgages. Rate shopping, as it is referred to, minimizes the impact of multiple inquiries providing they are made within a period of 30-45 days.
Soft inquiries, as you may identify by how they are referred to name, do not have as much of an impact on your credit score as hard inquiries. Things such as employer checks or those carried out by a landlord fall into this category, as do checks made by you into your credit score for monitoring purposes.
The idea behind soft checks is to allow an authorized company or an individual to check someone’s credit score for purposes other than to assess their risk as a potential customer. These days, it is advisable for individuals to check their own credit score in order to monitor and track their progress as a consumer.
In 2018, there is no excuse not to keep tabs on your credit score and your performance in the eyes of lenders, potential employers and landlords. As not all information provided to reference agencies is always correct, it may benefit you to check every once in a while.