Does Your Credit Score Drop When Someone Checks It?

If you’re preparing to make a huge purchase, such as a vehicle, RV, or house, you’ve probably heard that checking your credit report or applying for new credit might hurt your score. But, when someone checks your credit, does it drop? Is this advice still valid?

These well-intentioned people are most likely trying to warn you about the risk that a query into your credit record would lower your credit score. While this may be true in some situations, it is not always true. However, it is important to note the distinctions so that you may make an informed decision about your next significant purchase.

• Hard inquiries, like applying for an auto loan, can lower your credit score.
• Soft inquiries, like checking your credit score, will not lower your score.

Another thing you should remember about any potential impact on your credit score is that queries done by an employer, landlord, or insurance provider, for example, are known as soft inquiries and won’t harm your score.

The Bottom Line is It Depends on the Type of Inquiry

To understand how an inquiry can affect your credit score, let’s review how FICO scores are calculated.

5 factors that determine your FICO credit score:

• payment history
• amounts owed (utilization)
• length of credit history
• types of credit you have
• new credit you’ve applied for

It’s this last category that comes into play when we’re talking about the impact a credit inquiry can have on your score.

Hard vs. Soft Inquiries

A credit inquiry appears whenever your credit report is checked. This means that asking for a loan or a new credit card will result in an inquiry record on your report.

Lenders do credit inquiries to assess your history of timely payments and overall creditworthiness, but they are not the only ones who review your credit report. Other parties, such as future landlords, may also check your credit report for information about your financial responsibilities.

Hard Inquires: Mortgage Applications, Auto Loans, Credit Approvals, Etc.

Lenders and credit issuers may conduct hard inquiries that remain on your credit report for a year or more. If you have a lot of these entries, you may be in trouble with your finances and need to seek for more credit, even when this is not the case.

And it can be a major red signal for lenders, potentially lowering your entire credit score. Most score models, including FICO, allow for “rate shopping” by discarding similar requests made within 30 days.

Soft Inquires: Pre-Approval Offers, Background Checks, Etc.

Soft inquiries are those that are recorded differently on your credit report and are used when you are just verifying the accuracy of your credit report and score before applying for a large loan. Once more, soft queries are those that come from employers, landlords, or insurance companies; they have no bearing on your score.

When you do this, lenders won’t see it unfavorably because it will appear as a mild inquiry made by you. So feel free to review your credit score and report. Anyhow, you ought to do this once a year.

What It Means for Your Credit Score

Since applying for a loan or new credit card triggers a hard inquiry in your credit report, this can have the effect of lowering your credit score. However, it may not be as bad as it sounds. The portion of your credit score attributed to the new credit you apply for is only 10% of your overall score, and it takes more than a single or even a couple of hard inquiries to move the needle.

While it might not be a great idea to apply for a dozen new credit cards right before you need that major loan, a hard inquiry or even two is unlikely to have a huge impact.

That said, it’s always a good thing to keep your score as high as possible. So go ahead and check your credit report to make sure it’s accurate, and dispute any entries that don’t belong to you. The better your credit score, the more likely you are to be approved and receive the best interest rate possible.