Did you know that companies pulling your credit may sometimes hurt your score and other times not affect it at all?
In the world of credit and credit reports, there are two types of inquiries: hard or soft credit checks. Basically, a hard credit check (or sometimes referred to as a credit “pull”) is a voluntary inquiry of your credit report by a third party. Since these are made with your consent, they appear on your credit report, are visible to anyone when they pull your credit report and will affect your score.
Soft credit checks on the other hand, also known as involuntary inquiries, may result from a company wanting to verify the information you gave them, or can also be used by a lender wanting to send you a pre-approval letter. These inquiries happen much more frequently, and though all three credit bureaus track this data, they are only visible to you and will not affect your credit score.
This is important because whether you are opening a new cell phone line or an online savings account, the institution may make a hard pull on your credit and temporarily affect your score.
Chris writes:
I’m interested in setting up a high APY online savings account and have read your recommendations. I’m probably leaning more towards the EverBank account just because it yields such a high apy for the first 3 months and then is competitive after that. However, in reading other reviews many people complain that they do a hard credit check on you which actually hurts your credit. Unlike others who just do a soft. Now, I’m not too familiar with what the difference is but I’ve had problems in the past with a credit score due to a student loan and don’t want to do anything to jeopardize that again. Can you please give me some tips and insight. Is there a better option for me possibly?
With a hard inquiry, you are looking at a temporary drop of possibly a few points. In general, this is not going to affect you unless you are on the edge of what a particular lender deems as good credit and you happen to need a loan from that lender.
For example, The Bank of America representative told me that they consider anyone above a credit score of 730 excellent credit. If I have a credit score of 760, then a couple hard credit pulls won’t affect me at all since I’d have to do something drastic to lose 30 points.
However, the situation changes if I have, say, a credit score of 732. One hard credit pull may not affect me, but if I start shopping for all kinds of different loans, then 5 points less than 732 all of a sudden means that I’m no longer have excellent credit in the eyes of Bank of America and my interest rate (among other factors) may be affected.
Where the Hard and Soft Pulls Appear
Note though that the effect of a hard credit pull is temporary, so it’s like the effects will stay with you for the rest of your life. Here’s how the information is displayed in your credit report from the three credit bureaus, if you want to check your own.
TransUnion:
- Hard Credit Pulls: Listed under “Regularly Inquiries”, they stay on your report for two years.
- Soft Credit Pulls: Listed under “Account Review Inquiries”, but they will not be shown to anyone but you.
Experian:
- Hard Credit Pulls: Listed under Requests Viewed by Others, everyone who pulls your credit report will see this information.
- Soft Credit Pulls: Listed under “Requests Viewed Only by You”.
Equifax:
- Hard Credit Pulls: Listed under “Inquiries in the Last 12 Months”.
- Soft: Under “Inquiries that Do Not Display to Companies and Do Not Impact Your Credit Score”
What Should You Do?
As you can see, what you should do largely depends on your situation. Hard pulls will affect your score, but it may not matter to you if you a) don’t need to get a loan in the next few months or b) have a great credit score.
In general, I don’t worry too much about every little detail when I decide on anything that affects my credit score because I know that as long as I am a good user of credit (meaning I pay all my bills on time and I don’t stretch my credit limit too much), my score will take care of itself.
This works for me, but it doesn’t mean it will work for everyone in every situation.
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{ 3 comments… read them below or add one }
Good post,, I didn’t know there was a difference.
Seems the more I learn how to protect my credit the more things change.
Wow. Great info on credit pulls. I’m going to check my credit report at annual credit report now to see whether I have any. Thank you.
Nice information, nicely presented. Few people know these details about credit pulls and their exact impact on credit scores (but now a few more).