How Credit Inquiries Affect Your Creditworthiness
Credit inquiries are requests made by institutions to get a credit report from a credit bureau. It could be your next potential lender, landlord, employer, or an insurer.
These companies or individuals will make an inquiry to TransUnion, Equifax, or Experian, which are the three major credit bureaus. These inquiries are often termed ‘credit pulls’ given the inquiring party is pulling information about your report from the bureaus. This process is an important aspect of how the whole credit ecosystem operates.
Inquiries can be one of two different types: ‘hard’ or ‘soft’. Hard pulls are a part of the underwriting process for various types of loans. Soft pulls are useful for lenders to publicize their products, offer deals and promotional rates, and also help borrowers understand their creditworthiness.
Hard Vs Soft Inquiries
The major difference between the two different types of inquiries is that lenders initiate a hard inquiry to specifically decide your eligibility for a loan, whereas soft pulls are for multiple purposes.
Here are some other differences between the two:
- A hard check can have a negative impact on your credit score. Soft checks do not affect your scores.
- Lenders cannot see soft inquiries because they are available only on the consumer disclosures section of the report, which only you can see.
- There is no lending decision involved when lenders conduct soft inquiries. Hard checks, on the other hand, assess your creditworthiness.
- Hard pulls also occur when other companies verify your credit report. Debt collectors use this information to check your history for skip tracing.
- With soft inquiries, your existing lender can check your status for either promotional deals or account maintenance checks every month. Even when you check your own report, it counts as a soft inquiry.
- You can see the history of the checks on your report, which is available in a dedicated section. It includes information about all the companies that requested access to your financial information.
How To Avoid Hard Inquiries
Hard inquiries temporarily impact your credit scores, so you should take appropriate measures to minimize their effect. Apply only when you truly need money instead of casually applying without the full intent to borrow. Also, complete your purchase quickly if you are looking to apply for installment loans like an auto loan or mortgage.
It is also important to keep checking your report frequently to ensure that the hard pulls on your report are genuine. Sometimes, identity thieves can use your personal information like Social Security number and other data to open new accounts in your name. You must dispute such inquiries that result from fraudulent activities.
It is also important to note that you can check your reports at any time (but not always for free), without it affecting your scores.
Who Sees Soft Inquiries
This information is visible only to you when you check your report. The bureaus do not disclose this information when they sell credit history data to inquirers.
Accordingly, even if your new landlord, employer, potential lender, or insurance provider checks your report, they will not see this information. It also means that lenders cannot consider this information when they assess your creditworthiness.
Combating Unauthorized Inquiries
To fight back against unauthorized inquiries, follow these vital steps:
- If you find that there are checks on your report that you did not initiate, you can dispute that information to get it removed.
- The guidelines of the Fair Credit Reporting Act state that credit bureaus must investigate the disputed information with the institution that reported the inquiry. The inquiry will be removed if they discover that you did not initiate it.
- If you cannot settle the dispute during the first attempt, you can file a police report, claiming that an imposter had applied for credit in your name. You must then send a copy of the report to initiate the next set of proceedings with the bureau.
- A case of multiple checks on your report could also mean that you have been a victim of identity theft. You must contact the bureaus immediately when that happens and potentially initiative a credit freeze.
- The next step should be to log in to IdentityTheft.gov to get help and file a report for identity theft. This report will be essential to prove to the bureaus that you have been a victim of identity theft.
Hard inquiries will negatively affect your credit scores temporarily, so you must keep track of them and try to keep new credit applications to a minimum. Watch out for unauthorized checks, which could be a sign of bigger trouble or a scam.
When your scores are affected by hard checks, your future loan applications may be rejected, especially if lenders see multiple hard inquiries within a short period of time. It is decidedly important to keep your credit score and report healthy because it does take time for the effect of a hard pull to be reversed.
Remember, maintaining creditworthiness is important because any lender will ultimately approve your loan application based primarily on that factor.