It seems to be a common belief that checking your credit score can in some way damage it. This is definitely a money myth as studies have shown the opposite to be true. According to a 2017 survey conducted by Discover, 70 percent of people who made 12 or more credit checks per year reported that doing so positively affected their credit behaviour. However, what can harm your credit rating is a hard-inquiry (or hard pull).
Soft Inquiry Vs. Hard Inquiry
What is the difference between a soft and hard inquiry? Simple. A soft inquiry (also known as a soft pull) occurs when you check your own credit score — pre-qualified credit card offers, pre-qualified insurance quotes, and employment verification are some examples. A hard inquiry is when you apply for a line of credit and your lender pulls your credit report and score as part of the application process. Auto loan, student loan, mortgages, credit card, and construction loan applications are all considered hard inquiries.
How Inquiries Affect Your Credit Score
A soft inquiry generally occurs for common background checks; a new employer or landlord may ask to see your credit reports for example. These inquiries do not show up on your credit score since you aren’t using them to apply for new credit.
Your credit score is affected every time you apply for a loan or line of credit. When you make a hard inquiry, you’ll lose a few points on your credit score. Although they only really affect your score for 12 months, hard inquiries can remain present on your credit report for up to two years. Therefore, if you log many hard pulls in a short period of time it can begin to negatively affect your score. From a lender’s point of view, applying for several credit cards or loans in the span of a few months may demonstrate that you’re low on cash and planning to rack up a lot of debt quickly. No one wants to lend to someone who can’t even make minimum payments.
Check Your Credit Score Often
It’s a good idea to regularly check your credit report. Besides the fact that it can help you improve your credit score over time, you may be able to catch errors that will help your score stay strong. If you see a hard inquiry made without your permission, for example, you should dispute it with the credit bureau. If your claim is valid, the hard inquiry can be removed from your report and your score may be readjusted.
The bottom line is when it comes to maintaining a good credit score, ensure you’re keeping track of how many hard inquiries you’re making at a time. Try your best not to apply for too many loans at once to keep yourself in good standing.
If you’re having trouble securing a mortgage because of your credit rating, I can help. Rather than just approaching one single financial institution, I work on your behalf with multiple locations to find a mortgage that suits your needs best. Contact me today to learn more about what a mortgage broker can do for you.