The Credit Challenge

There are many people that tell us that pulling your credit and having credit inquiries will always damage your credit score.  Well, I want to shine some light on the subject, because that is not always true.

Before we can debunk the credit inquiry myth, it is important to know that there are two types of credit inquiries.  Although this system for inquiries isn’t new, many people don’t want to talk about it because of two reasons: 1. they just don’t know better, or 2. they want to keep this information from you in order for their scare tactic to work on you (which I will get into on another post).

So, let’s get right into it. 

The first type of credit inquiry is a soft credit inquiry, or soft pull, because you are the one requesting your own credit.  When you request your own credit, there is absolutely no damage to your credit or credit score whatsoever.  The reason is simple.  How can you properly monitor your credit if you get penalized every time you access it? (You are monitoring your credit, aren’t you?)

So, you can actually access your credit every month to check for errors or new account history or whatever, and your credit score will not decrease. 

There, the secret is out!  But before you get too excited about this, I also have to mention to you that lending institutions, whether you are applying for a mortgage, a car loan, or a credit card, will not use your credit report for your safety and theirs.  It all comes down to accountability. 

If I brought in my own credit report to you, and asked you to lend me $200,000 for a house, and you didn’t check my references, but solely went off of what I provided you, would you lend me the money?  Chances are, you wouldn’t.  Well, believe it or not, there are still people out in this world that forge documents to get what they want. 

On the other hand, when the bank pulls your credit, their name, account number, and contact information appears on your report, so they know for certain that the information that they have is real.  But, more importantly, if they falsify anything just to get your loan through, they get the lawyers after them, not you.  Don’t worry though, this doesn’t happen too often, but you should know about it anyway.

The other part of soft inquiries is when you get a pre-approved offer from credit cards in the mail.  They have in fact taken a look at your credit, however, since you didn’t request it of them, it doesn’t damage your credit either. It is only when you solicit a loan that requires a credit report to be pulled that you may see your credit score decrease.  As a matter of fact, when you access your own report, these “soft” inquiries from companies will all be listed out for you, so you can see who has accessed your information.

That brings us to the second type of credit inquiry, which is the hard inquiries.  I’ve already touched on these, but let me get a little deeper into them.  These are the inquiries that you get from applying for credit cards, insurance, school loans, mortgages, auto loans, installment loans (like furniture), and other types of credit.

Since this is for commercial use, and you are looking to obtain credit with these companies, these are the damaging ones.   Now, if you have only pulled your credit once or twice in 6 months, you have no worries.  However, if you apply for 2 or 3 credit cards a month, your score can potentially drop even 80 points in a short period of time.  Be careful and smart about applying for credit.  If possible, spread them out over time, but only if you really need them (which many times you don’t).

Finally, there are two last points that I want to make in regards to hard inquiries.  If you get crazy on the credit applications, there comes a point where the credit score will stop going down, because the maximum damage has already been done.  So, let’s say that you pull your credit a million times in 5 days, that wouldn’t do more damage than pulling it 100 times in 5 days, because you’ve already exhausted all the damage that can be done with credit inquiries. There are other factors that can lower your score, but in that case, additional credit inquiries will not.

In addition to that fact, mortgage and auto loans operate a little differently as well.  For these two, you have a 14 day window which you can shop around for a mortgage or car loan without any further damage.  So, if you are shopping for a mortgage, you have 14 days to look around and multiple companies can access your credit without any damage to your score.  The same goes with an auto loan.  You just can’t flip flop, and apply for a mortgage and within 14 days apply for a car thinking that you will not get penalized, because that would be 2 inquiries since car loans and home loans are different kinds.

Hope this was helpful, and stay tuned so that you can find out more about the inquiry scare tactics that a lot of lenders use.