You may have heard that checking your own credit report will negatively impact your credit score, but this is not true. While new credit inquiries account for 10% of your credit score calculation, it is important to differentiate between “soft” inquiries and “hard” inquiries on your credit.
What’s the difference between “hard” and “soft” credit inquiries?
What is a soft credit inquiry?
Soft inquiries may be listed on your credit report, but they do not impact your credit score. You may not even be aware that a soft inquiry has occurred. Examples include:
- Checking your own credit report and/or score
- Unsolicited, pre-approved credit card or loan offers
- Employer background checks
It is important to check your own credit report regularly in order to make sure the information is accurate and complete. The Fair Credit Reporting Act (FCRA) actually requires that each credit reporting agency provides you with a free copy of your credit report, at your request, once every 12 months. You can request these reports through www.annualcreditreport.com.
What is a hard credit inquiry?
Hard Inquiries will be listed on your credit report, and they do impact your credit score. This type of inquiry occurs when a financial institution checks your credit report in order to make a lending decision. You will typically be required to authorize a hard inquiry. Examples include:
- Applying for a credit card
- Applying for a mortgage
- Applying for a car loan, student loan, or personal loan
A hard inquiry is recorded each time your credit report is pulled for one of these reasons. One exception, according to myFICO.com, is when you are “rate shopping”: all inquiries within a 45 day period for a mortgage, an auto loan or a student loan are counted as one single inquiry. Hard inquiries remain listed on your credit report for two years, although they only impact your score for one year.
Hard inquiries impact your credit score because too many recent credit applications may indicate to a lender that you are taking on too much debt at one time, or are in financial trouble. So while regularly checking your own credit report is recommended, it is important to keep the number of new credit applications to a minimum.