Credit Scores and Credit Rating Factors
Soft pulls do not affect credit scores and hard pulls do. When you check your own credit or receive promotional credit offers that have “pre-approved” you, a so-called “soft pull” inquiry has been performed. Soft pull inquiries are only visible to you and do not affect your credit score. When lenders check your credit report, for reasons such as to open a new account or verify eligibility for credit extensions, a “hard pull” is performed. These “hard inquiries” are listed on your credit report. When a hard pull is performed, generally up to five points can be deducted from your credit score. When you apply for credit you give lenders the right to inquire for a copy of your credit report visibly, so other lenders can evaluate your eligibility. Start monitoring your credit now:
Factors Impacting Credit Scores
FICO score, created by Fair Isaac Corporation, is used by lenders to determine if the borrower’s score is eligible for extended credit. FICO score takes into account five factors of creditworthiness: payment history, current debt to credit ratio, the types of credit used, length of credit history (determined by the age of the oldest account), and new credit accounts. Soft inquiries or soft pulls are made by people or companies who want to do a background check without your permission to see if you are eligible for certain credit card offers, or self-checking. Regular self-checking of credit scores ensures the information is correct and helps to combat theft identification and mistakes on credit reports. Only the result from your application for new credit, “hard pulls” will be counted on FICO score.
Soft Pull Inquiries
Requesting your own copy of credit report is a soft pull. When companies send you promotional credit card offers, this is also a soft pull. The soft pull inquiries do not affect your credit score, and they are only visible to you. Background checks are also generally soft inquiries, and they do not have to be authorized by you. But, if a lender checks your credit score, for example, to open a new account or extend credit, the credit score is affected. Common lenders include mortgages, apartment rentals, credit cards, and personal or auto loans.
Hard Pull Inquiries
Hard inquiries or hard pulls are done by the financial institution when you are making a lending decision. Hard inquiries could lower your scores by few points. Making a large purchase can also be considered as one hard inquiry. When you have a hard inquiry or hard pulls, generally up to 5 points according to myFICO.com, can be deducted. Multiple hard pulls within a 14 to 45 day window may be treated as one hard inquiry so individuals are not penalized for “rate-shopping.” Those with 6 or more hard inquiries on their credit reports have been shown to statistically be more likely to declare bankruptcy. Hard inquiries are removed from an individual’s credit report after varying lengths of time usually between 1 and 4 years.
Use the calculator below to estimate the maximum number of points that could be deducted from your credit score.