Let’s suppose you’ve once applied for financing, a loan, or any other credit, and the lender evaluated your credit score as part of the process. In that case, there is a possibility that you’ve experienced a hard credit check.
When lenders review your credit with a hard inquiry, They make an official statement in your credit reports. They use the details to evaluate how you’ve handled credit previously, how fast you repay your debts and bills, and whether you have any negative dent on your credit reports.
Also, they use it to know if you’re juggling several credits and the duration you’ve been managing your credit. These checks help lenders decide whether to provide new credit to you or give you additional credit.
An Overview of a Credit Check
A credit check is when a company, usually a lending company, evaluates your credit report’s details to know your financial behavior. It is also known as a credit search. The first step involves the company or person sending a request for information to one of the three credit bureaus.
The credit bureau can decide whether or not to share your credit report if the person or company requesting it has the legal right to ask for it. If you’ve placed a credit freeze on your data, companies will be unable to carry out a credit check on you. Also, the credit bureau will be unable to share your credit information.
Under federal law, you have the right to know who has accessed your credit information. Hence, a credit reporting agency must record every credit check in your credit file.
There are two types of credit check, they are:
- A soft credit check (soft search)
- A hard credit check (hard search)
You can prepare for a hard credit search by examining your credit reports and ensuring no harmful or destructive scores that could affect you. Evaluating your credit report is often known as a soft credit inquiry or a soft pull. Regardless of how many times you check your credit score, it will not affect your score or your chances of being accepted for credit.
Mostly, lenders do not need your permission to carry out this search, though they must have a genuine reason for doing so. Companies that are eligible to carry out a credit check on you include:
- Building societies
- Credit providers
- Utility suppliers such as gas, water, and electricity
- Letting agencies
- Mobile phone companies
Lenders may also check any financial associations you may have; it can be someone you share a bank account or mortgage with. Their credit history will be evaluated.
Understanding a Hard Credit Check
A hard credit check occurs when a company makes a complete review of your credit report. Every hard check carried out by a company is recorded on your credit report, so any other company checking will be able to see that you’ve previously applied for credit.
Note that several credit checks over a short duration can hurt your credit score for six months, thereby decreasing your chances of getting approved for credit in the future. Once you apply for credit, the company you’re applying to will carry out a hard check of your credit report to review your sustainability.
Applying for lots of credit applications in a short period might give companies the impression that you’re in a financial glitch or rely too much on borrowing. A hard check indicates you’ve applied for credit; hence signal to lenders that you may be at a higher risk. Most hard credit checks remain on your credit report for 12 months, although some, like debt collection checks, can stay for a more extended period.
You can also be subject to a hard check from utility providers and mobile phone companies when applying to leverage their services. Below are some examples of when a hard check can occur:
- When you apply for a loan, credit card, or mortgage
- Personal loan application
- When you apply to use a utility service
- Apartment rental applications
- Student loan applications
- When you apply for a pay-monthly mobile phone contract
- Auto loan applications
How Hard Checks Affect Your Credit Score
A hard check could decrease your credit scores by some points. Often, a single hard review might not significantly impact whether you get approved for a new card or loan. Usually, the credit scores decrease or fade away before the inquiry is indicated on your credit report.
You might want to reconsider your options before applying for tons of credit cards at the same time. Always consider spacing out your credit card applications. The impact of a hard credit check on your credit score depends on your general credit health.
Are Hard Credit Checks Avoidable?
Hard credit checks are not avoidable as long as you apply for credit; the company will carry out due diligence. You can only minimize the number of hard checks on your report by making as few credit applications possible.
Ensure to make the applications you settle for have a higher possibility of acceptance. You can achieve this by only applying for credits you’re eligible for. There are tons of software you can use to check your eligibility rating for credits and loans. Luckily, most of them are free, and only a soft search will be recorded on your report; the inquiries won’t affect your credit score.
You can reduce the effect of hard credit checks on your report by spacing out your credit application. This will help protect your score. It is recommended to space your application – one application every three months. Bear in mind that companies have their criteria when it comes to your credit score. It is always advisable to check with the company or read their terms and conditions before going ahead with your application.
Managing Your Credit Inquiries
Below are some steps you can take to manage the impacts of a hard credit check on your score:
- Only make credit applications when necessary
- Ensure to short within a short timeframe if you’re applying for a mortgage or auto loan
- Always check your credit report regularly to ensure you initiate any hard inquiries indicated
- Ensure to pay off credit card debt as quickly as possible
- Try to manage other factors that are significant to your credit scores, like your payment history and credit utilization rate.
- Ensure to pay your bills timely every month
Generally, a hard credit check has a minor impact on your credit scores. Checking your credit does not hurt your credit score though it is advisable to limit hard checks whenever you can.
If you notice a hard credit check on your report that should not be there, you can dispute it immediately and get clarifications on it as it could be a case of fraud or identity theft. You can also request the credit bureau to remove an inquiry if a company reviews your credit in error or without your permission.