Does Running Your Credit Affect Your FICO Score?
- A credit inquiry occurs whenever the credit bureaus receive a request for a copy of your credit report. While you can make a credit inquiry on your own to monitor your credit history, the majority of inquiries come from lenders, current creditors, employers and insurance companies. Some types of credit inquiries can lower your FICO score.
- The credit bureaus recognize a credit inquiry as either a "hard" pull or a "soft" pull. Banks conduct hard pulls occur when you apply for new credit, a loan or even a new checking account. According to LendingTree.com, each hard pull costs your FICO score approximately five points. Soft pulls do not have an adverse affect on your credit score and occur when an employer or insurance company reviews your credit history. Credit checks you perform yourself are also soft pulls.
- While shopping around can help you get the best interest rate on a new loan, it also results in multiple hard pulls on your credit report. Fortunately, the FICO scoring formula treats all inquiries performed during a typical loan-shopping period as one inquiry. This prevents you from being penalized for searching out the lowest rates. FICO '08, which was released in early 2009, gives you 45 days in which to shop freely for a new loan.
- Unlike other negative entries that damage your credit scores, credit inquiries remain a part of your history for a relatively short period of time -- two years at most. During this two-year time frame, lenders can view past inquiries on your credit report. Bankrate notes, however, that the FICO scoring formula takes a past inquiry into consideration only when calculating your FICO scores for the first year after the inquiry occurred.
- Although some forms of credit inquiries can hurt your FICO score, the degree of damage usually isn't significant enough to merit not opening a new bank account or passing up a low-interest credit card. Because the FICO scoring model forgives only loan shopping, however, applying for multiple credit cards, store cards and bank accounts within a short period of time can prove considerably detrimental to your credit rating.