Credit Inquiries: What You Need to Know

May 18, 2021 12:39:02 PM

Your credit score dictates a lot in your life — from your interest rates to whether or not you qualify for a certain job. It’s important to keep track of both your score and your credit report (which is your credit history that’s used to make up your score) to check for any inaccuracies. And, you might be wondering who else can view your credit history and whether or not it will affect your score. Here are a few things you should know about credit inquiries.

What is a Credit Inquiry?

A credit inquiry is when your credit report is pulled by someone legally authorized to check your credit history; that includes yourself! Credit inquiries are also often referred to as “credit pulls” or “credit checks,” but the gist is the same: a credit inquiry will appear as an entry on your credit report when you or an authorized person or company reviews your credit.

When is Your Credit Score Pulled?

You might be wondering why someone else would be checking in on your credit history. While your credit report is not public information, it can be accessed by a several kinds of organizations. Most commonly, your score or report will be pulled by lenders checking up on your debt and payment history before extending you a loan, or when you apply for a job or other service like renting a home. You also can (and should) check your own report to know what others are seeing when they make a credit inquiry as well as to check for any signs of fraud or identity theft.

Here are a few organizations that have access to your credit score:

  • Banks and Credit Unions – When you open an account, your bank or credit union may make a credit inquiry to confirm your creditworthiness.
  • Creditors and Lenders – Just like with your bank, your creditworthiness is a major factor that a creditor or lender will consider when you apply for a credit card or loan. On top of that, your credit history could play a role in determining the terms of your loan.
  • Employers – Your current and future employers cannot access your credit score, but they may be able to pull your credit report. Employers also cannot access your credit report without your written permission. The report they see could be modified to protect your personal information like your date of birth, but other credit-related information will likely be included.
  • Government agencies – In certain instances, government agencies can pull your credit report. They may be checking whether or not you qualify for public assistance, looking for up-to-date contact information, or calculating how much you can afford to pay in child support, among other reasons.
  • Insurance Providers – Just like with loans, your insurance company will also want to check your credit report to determine the rate at which they should insure you. It’s in your best interest to be familiar with your own credit history and do your best to maintain a good standing with your credit, because negative information on your report could lead to a higher insurance rate.
  • Collection Agencies – Debt collectors pull your credit report to estimate whether you’ll be able to pay your debt as well as to collect valuable contact information like your address and place of employment so that they can collect from you.
  • Landlords – Landlords are looking for any recent foreclosures, evictions, or even delinquencies to determine whether or not you’re a safe option for them to rent to you.
  • Utility Services – Like with your landlord, utility services are checking your credit report to determine whether or not you’re a risky customer. Negative information within your credit history may mean that these companies will charge you a security deposit before providing you with a service.

Hard Inquiry vs. Soft Inquiry

There are two different types of credit inquiries. A hard inquiry (or pull) appears on your credit report and may temporarily affect your score. They occur when you submit an application for credit, loans, or other services and a lender pulls your report. Your score may temporarily be lowered slightly until you are able to show that you can manage the new potential for debt that comes with opening a credit card or line of credit or applying for a loan. When you take on this new potential for debt, the increase is balanced by lowering your score slightly. A hard pull will remain on your credit score for up to two years, but the sooner you manage paying off your debt appropriately, the sooner your score will recover.

Tip: Because hard inquiries can affect your credit score, avoid taking out multiple loans or applying for new credit cards at the same time or too closely together. Only apply for credit when you really need it.

A soft inquiry occurs when your credit is checked for reasons unrelated to lending, such as for account reviews or preapproved offers. Because these reasons are not related to the level of risk you pose for repayment, they do not affect your credit score. Monitoring your own credit report, for example, is considered a soft inquiry and does not affect your credit score.

How Can You Access Your Score?

You may have access to your credit score directly from your credit card company or financial institution, as well as your loan statement. You can also use a free credit score service. Thanks to the Fair Credit Reporting Act, you are also entitled to a free annual credit report each year, which you can get from each of the three main consumer credit bureaus: Equifax, Experian, and TransUnion. Remember, pulling your own credit report is considered a soft pull, and therefore, does not affect your score.

Tip: There are many different models used to calculate your credit score. The three main consumer credit bureaus which collect and store your information are Equifax, Experian, and TransUnion. As you monitor it, make sure you’re using the same version each time; otherwise, it probably won’t make sense!

Tags: Banking Tips, Credit Score