While it’s true some credit checks can hurt your credit score, financial gurus say these inquiries are really overrated. Whether your FICO credit score is affected by taking a peek at your credit all depends on whether it is a “hard” or a “soft” inquiry, and even a hard inquiry will cost your credit score five points at the most. Credit ratings run on a scale of 350 to 850, with higher numbers meaning better credit.
Generally, hard inquiries are those where an actual or potential creditor pulls your credit report. These may include checks by utility companies and cell phone services. If a potential landlord checks your score, that’s also a hard inquiry. Anything that involves future monthly payments where the creditor wants to make sure you can meet the bill also classify as hard inquiries. According to financial website Bankrate.com, a hard inquiry can shave one to five points off your credit score -- not really enough to make a great difference in your creditworthiness.
If you check your credit score yourself, it’s a soft inquiry. Searches made while you’re applying for a job or an existing creditor making a spot check also qualify as soft inquiries, which don’t hurt your credit score. If you receive an unsolicited offer for zero-interest credit or insurance, the potential creditor ran a soft inquiry before making an offer. While a hard inquiry tries to determine whether you can make regular payments, a person making a soft inquiry just wants to know if you’re a responsible person.
While each hard credit check costs you a few points from your FICO score, a cluster of checks made when you’re shopping around for a loan count as one inquiry. For car loans and mortgages, these multiple inquiries must fall within a 14- to 45-day period to count as a single check, depending on the scoring system. However, many hard checks over a longer period may be a red flag. According to MyFICO, the website of credit score company Fair Isaac, someone with many hard credit checks -- usually six or more -- is statistically more likely to declare bankruptcy than someone who has fewer. Because it may take more than one scan to get a mortgage, student loan or auto financing, credit companies will ignore those inquiries for 30 days.
What Your Record Shows
Credit bureaus determine whether an inquiry is a hard or soft check. When you check your own credit score, you will see both kinds on your record. Potential creditors only see the hard checks. According to CreditSesame -- which offers its own inquiry service -- hard credit inquiries stay on your credit record for two years but will only affect your credit score for one year.
If you have a short credit history or just a few accounts, a hard credit check will have more impact on your credit score. While it’s recommended you close old unused credit accounts, you may want to keep the oldest one alive to show you’ve been borrowing money for a while.
Al Bondigas is an award-winning newspaperman who started writing professionally in 1985. His print credits include the "Mohave Valley Daily News" and "The Mohave County Standard." Bondigas studied journalism at San Bernardino Valley College in California.