We know that high credit scores have a positive impact on insurance rates, ability to borrow money, open a bank account, and — yes– qualify for a good mortgage rate. Do you have the impression that every time your credit report is pulled by an interested party, it has a negative impact on your credit score?
The answer is … it depends.
Credit inquiries fall into two categories — soft and hard. Examples of soft inquiries include self-checks on scores, promotional inquiries, and account reviews. Promotional inquiries are made by companies such as credit card companies that want to determine a person’s eligibility to qualify for a special offer. Account reviews are often conducted by potential employers who want to assess a person’s credit-worthiness. This can happen especially if someone applies for a job in a financial sector or with a high security clearance.
On the other hand, standard inquiries that are made when a person applies for a new credit account are considered hard pulls, and they can have a modest impact on a credit score rating. Evaluators get nervous when an individual makes several attempts to apply for credit. In fact, persons who show 6 or more hard inquiries can be up to 8 times more likely to eventually file for bankruptcy. As a general rule, hard credit inquiries impact approximately 10% of a person’s overall credit score. They aren’t enough to prevent someone from qualifying for a loan on their own, but can sometimes be a contributing factor when someone is within a few points of the score they need for loan approval.
So it’s always a good idea to be selective about the attempts you make to secure more potential debt — especially when you are on the verge of trying to buy a new home, car or other big ticket item. Here’s one last note — If you’re actively shopping for a car or student loan, don’t worry. Multiple attempts that lead to one credit arrangement for a specific reason are considered one inquiry.
Sanford’s Team Move/OVM Financial‘s blog has an article with much more information about credit inquiries for your review.