Credit checks are a regular part of lives and some may happen without our knowledge. A credit check is done to obtain a credit card, purchase a house or obtain a job. Not every credit check is bad. But we should be careful in how we use credit and obtain credit.
What Is A Credit Inquiry
What is a credit inquiry? A credit inquiry is a request by a lender to a credit agency to find out who you are and how you have been handling your credit so they can assess your credit worthiness.
A credit inquiry is typically associated with obtaining a loan. Credit inquiries may be automatic, when someone applies for a mortgage or other type of loan, or manual, when the lender needs to investigate for fraud or other reasons.
A credit report is a summary of your consumer financial profile and will most often include your loan payment history and debt-to-income ratio.
A credit inquiry will be noted on your credit score. A single inquiry typically does not have an impact on your credit score.
Types of Credit Checks
There are two types of credit checks a soft credit check and a hard credit check.
Both types serve the same purpose and function in similar ways but the reason why the credit check is being done will determine the type of credit check.
What is a soft credit check
A soft credit check is a simple credit report check that does not ask for much of the applicant’s personal information.
Soft credit checks gives the requestor “partial” credit report and is used for companies that want more information on the applicant, but want to avoid providing too much of the individual’s personal information to the organization being inquired.
Soft credit checks are typically used by employers to check with a company, such as a credit bureau.
Employers will use a soft credit check to find out if the individual they are considering hiring has a bad credit history in the past, in order to see if they will be a good risk for the company.
What is important to note is a Soft credit check will not affect your credit score when pulled, regardless of how many times.
What Information Is Reviewed In A Soft Credit Check?
- Payment History
- Accounts owed
- Credit History Length
- Credit Mix
- New Credit
What is a hard credit check
A hard credit check is also known as a hard credit pull. This is an inquiry to any credit report databases. A hard credit check can be made by an employer, bank, some insurance companies, some landlords, cell phone providers, and some utility companies.
A hard credit check is usually used to find out more information about your financial history. Your credit history will have an impact on your ability to get approved for a loan, purchase a car, rent an apartment, or even get a job.
A hard credit check can impact your credit score and usually each check will have a small impact on your credit score. I won’t severely damage your score.
Why does a hard credit inquiry hurt your credit
A hard credit inquiry is when a company requests to view your credit file. This request often comes when you are applying for a new credit card, car or home loan.
Credit card companies will use the hard credit inquiries to calculate your credit score. They will typically look at the length of your credit history, your utilization ratio, your payment history, the length of time since the inquiry, the number of inquiries over the past year, and the mix of inquiries across credit bureaus.
A hard credit inquiry can lower your credit score, but it does not cause a hard inquiry to lingering on your credit report for as long as a collection account. In most cases.
There are three major credit bureaus in the United States and they are Experian, Equifax, and Transunion. When checking your credit some company may request information from one agency, two or all three agency.
Your score at each agency may also be different as credit issuers such as auto loans may only report your payment history and other credit information to one agency.
Checking your credit on a regular basis is a good practice. Identity theft can damage your credit score quickly.