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Do Credit Checks really hurt your Credit Score?

Do credit checks really hurt your credit score?

by Chad Rieflin- Director of Grants and Programs

Have you ever heard someone say that every time someone checks your credit history it will lower your credit score? This is a topic that comes up often when we speak with clients and community members who are interested in checking their personal credit reports or are applying for loans and want to make sure their credit score is in tip-top shape. While it’s true that some credit checks – known in the credit reporting industry as “inquiries” – can have a negative impact on a credit score, there are several distinctions that consumers should understand about this issue.

First, not all inquiries have an impact on your credit. There are two main types of inquiries known as “hard” inquiries and “soft” inquiries. Those of the “hard” variety are initiated because you actually applied for a loan and because of that application a creditor pulls your credit report to review it. Those of the “soft” variety are initiated for reasons other than actual credit applications, such as credit card offers, personal credit checks, and credit report reviews. These in particular have no bearing on a credit score and do not show up on credit reports pulled by creditors – only on personal credit reports like those pulled through Often with personal credit reports, soft inquiries will be segregated into a separate category under a heading that states “Credit checks that do not impact your credit rating”. On the other hand, hard inquiries have been known to take as many as five points off of a credit score in one instance. So, for example, if you receive a “pre-approved” credit card offer in the mail it will not affect your credit score until you actually fill out the enclosed application and the credit card company in turn pulls your credit report. Do this five times in a month and you could potentially see a 25 point drop in your score.

So what about those times when we are shopping around for interest rates on a loan or a car dealership shops your loan application around to several lenders? The good news in those cases is that the credit scoring models consolidate inquiries for auto, home and other loans that are conducted in a 14 day span of time into one instance. This means that even if a car dealer runs your credit 20 times, as long as it’s done in in the 14 day span, it will only affect your score minimally.

As with any actions regarding our credit report, it’s always best to err on the side of caution and be sure that what we’re contemplating is truly necessary for our financial benefit. Sometimes, the benefit of applying for a loan outweighs the impact that it may have on our credit score. Alternatively, it might not be worth that 10% discount at all of the department stores when you apply for their credit cards. Hopefully, knowing these simple principles will help you to navigate this issue appropriately and continue on track towards your credit and financial goals.