The Truth About Pulling Credit
One of the most frequent questions I get asked as a REALTOR® is “how much does pulling credit hurt their credit score”. This is especially true if credit is pulled several times.
The reason a person or a company may be pulling credit on someone is to establish the creditworthiness of the individual. This might be to establish a pre-approval letter for a car or a home. Or it may be to check if someone would qualify for a rental property.
Pulling someone’s credit is also frequently done to do a background check for employment at some jobs or even to qualify someone for educational classes.
Hard Inquiry vs Soft Inquiry
The Hard Inquiry
When an individual authorizes someone else to pull their credit this is seen as a “hard inquiry”. It is also called a “hard pull”. These types of pulls can lower your overall score by up to 5 points with each pull. They may also stay on your credit report for up to 2 years. Over time, the weight of these pulls will go down. You can read more about that by reading this article.
For most people having the occasional hard pull won’t damage their credit too much over time. However, having several hard pulls in a very short period of time will hurt you. And, it depends on who is pulling your credit.
Credit Cards vs Mortgage Companies
The institution pulling your credit will depend on how much damage each inquiry is made.
If you are applying for several credit cards at the same time then this could flag that you could be short on money and are looking to get as much credit as possible. This will be seen as a potential red flag.
If you are getting several pulls from a school, auto, or home mortgage company then this is seen as a good sign. This means you are shopping for the best type of deal possible.
The Soft Inquiry
Another type of credit authorization is called a “soft inquiry” or a “soft pull”. This occurs when you are pulling your own credit or when someone else is pulling your credit for the purpose of pre-approval for insurance or a credit card. It can also be seen when someone is doing employment verification.
Pulling Your Own Credit
Pulling your own credit is actually a good thing and it does not hurt your scores, whatsoever. By monitoring your credit typically means a higher score. If something were to appear that is fraudulent or inaccurate you are on top of it to have it handled. You do this by simply disputing the issue. Read more about that here.
One great place to go to pull your own credit is through a service like My FICO.
Another time a soft pull occurs is when a credit card company or insurance company pulls your credit (usually as a mass group of people) to see who may qualify for their services. These types of soft pulls do not affect your credit at all.
Thus, when you get a lot of those letters in the mail it simply means that the company has done a soft pull in order to determine your initial approval. This soft pull does not affect your credit at all.
However, if you do apply for that credit card company then they will do a hard pull on your credit and that will affect your score.
The last type of soft pull is when someone pulls your credit to verify your employment. This is a non-evasive pulling of credit simply to see where you are currently employment history. This is simply to ensure your application or resume is accurate.
Whenever you are pulling your credit or having your credit pulled by someone else the reason for the check is the most important thing to consider.
If it is your own checking of credit (i.e., soft pull) or giving someone else permission to be pulling credit (i.e., hard pull) will determine how much your score will be affected.
If the pull is for a credit card then it will be affected each time you send in for a credit card. But, if the pull is to shop around for a school, home, or auto loan then only the first pull affects your credit. This is true if it is within a short period of time. Your score should only be affected by the first pull and not by the subsequent ones.