Have you ever wondered “How many points does the credit drop when they check it?” According to FICO, hard credit checks or “hard inquiries” from lenders can lower your credit score by 5 points or less. If you have a strong credit history, it could be less. However, the drop is temporary. Typically, the credit score bounces back again after a couple of months, assuming payment behavior remains positive.
What are credit checks?
A credit check, also known as a credit check or “credit score lookup,” happens when lenders, landlords, and potential employers access the details of your credit history. They do this through the three major credit bureaus: Equifax, Experian, and Transunion. In addition, you will be able to see them in your report, since they leave a note.
Why are credit checks important?
Lenders and companies will want to know how risky it is to lend you money when applying for a credit card, researching interest rates on a loan, or taking on a new financial responsibility, like renting an apartment.
Through credit checks, interested parties can check your payment behavior and thus calculate your level of financial responsibility. In this way, they can estimate the probability that you will pay the loan, the credit card, or the rent. To achieve this, there are two types of credit checks, which we will mention below.
Soft credit verification or “soft inquiry”
The soft credit check or “soft inquiry” does not subtract points or require your permission. Normally, it is performed when the entity seeks information for reasons not related to a financial obligation, such as a background check or a promotional credit offer. Some of the most common cases in which this is done are:
- Credit checks by employers
- Pre-approval of loans
- Unsolicited credit limit increases
A hard credit check or “hard inquiry”
A hard credit check, also known as a “hard inquiry” or “hard pull,” issues a complete and detailed report of your credit history and is usually what lenders ask for to approve your line of credit or start a new financial commitment. Hard credit can lower your credit score by about 5 points for each application, with 10 points being the most it could go down.
Among the commitments that normally require a hard credit, we have the following:
- Credit card applications
- loan applications
- Rent an apartment
- Request for basic services or communications
How does the credit check affect you?
FICO research shows that opening multiple accounts in a short period poses a higher risk to your score. When the information on your credit report indicates that you have applied to multiple lines of credit in a short period, your score may drop.
And while FICO only considers credit checks done in the last year, the scores stay on the report for a total of two years. This period also applies to the cases of Vantage Score, UltraFico Score, and other formulas.
If you apply to multiple credit cards in a short period, these requests will appear in your history. Pursuing new credit can be a higher risk, but most scores aren’t affected by multiple checks from the short-term car, mortgage, or student loan lenders. These are normally treated as one-time checks and will have very little impact on the score.
How many points does the credit drop when they review it?
The impact of applying for credit can vary according to the person and their specific credit history. Generally speaking, checks typically have a very small impact on your credit score of about 5 points on average, with 10 points being the highest.
To get a clearer perspective, FICO scores range from 300 to 850. Credit checks can have a bigger impact if you have few accounts or short history. Similarly, there may be a higher risk if there are many checks.
Statistically, people with six or more credit checks on their reports are up to 8 times more likely to file for bankruptcy than people with no inquiries on their history.
While credit checks often play an important role in measuring risk, it’s not big enough to fill the entire score, as they only make up 10% of the total credit score. Instead, if you want to repair your credit or raise your score, you should focus on paying your bills on time and reducing your debt load.
Does checking your credit check affect your score?
When you check your credit history, the credit bureaus consider it a soft credit check, so it has no impact on your score. Many services allow you to check your credit completely free of charge and without hits, such as Credit Karma. Similarly, you will see the same effect if you use a credit notification app or a website.
Credit check and fees: How to approach it?
According to FICO research, when shopping for rates on a mortgage, car loan, or student loan, credit bureaus ignore checks made in the 30 days before calculating a credit score. For this reason, if you manage to get a loan in the next 30 days, the inquiries will not affect your score while you get the best rate.
Also, credit scores see the credit checks you’ve done in the last 30 days. If your score shows several, but you only contracted one line of credit, then the system will consider all the verifications made in a specific period as a single inquiry.
Scores calculated using the old formulas reduce this time to 14 days. However, new versions of the calculation increase the period to 45 days. Each lender chooses the version of the formula they want, so it will depend on this.
Considerations when comparing interest rates
If you need a loan, compare interest rates within 30 days. FICO scores distinguish between seeking a single loan and multiple lines of credit. This is done, partially, by looking at the number of times checks occur.
When looking for new credit, just apply and open new lines of credit according to what you need. Before applying, check your report and your score to know your situation. Viewing your information will not affect your score.