The effects of a credit check can be both positive and negative; however, it can be damaging to a credit score. A credit check, also known as a credit inquiry, is a process to review a person’s credit history. A credit check can include reviewing an individual’s credit reports and credit scores to determine their level of risk in taking out a loan or renting a residence.
When a credit check is conducted, there may be a negative impact on the individual’s credit score depending on the type of credit check and the number of credit checks performed. In this article, we will discuss the effects of a credit check on credit scores, the types of credit checks, as well as how to protect your credit score when conducting a credit check.
What is a Credit Check?
A credit check is a process to review an individual’s credit history. It can include a review of the individual’s credit reports and credit scores in order to assess their level of risk for taking out a loan or renting a residence. Credit checks can be performed by lenders, employers or landlords. Credit checks are becoming increasingly important, as they are often used when making decisions about financial and housing matters.
Types of Credit Checks
There are two main types of credit checks: a soft credit check and a hard credit check. A soft credit check can include any number of inquiries that are not used to make a decision on lending. These credit checks are typically used to verify miscellaneous information, such as identity or employment. These types of credit checks are not normally visible to others and do not affect the person’s credit score.
A hard credit check, on the other hand, is visible to other individuals and lenders, and it can have a significant effect on one’s credit rating. These checks are commonly used when applying for loans, or when potential landlords or employers are assessing an applicant’s background and risk level.
It is important to note that there may be several hard credit checks from the same institution in a short period of time; this may be considered by some lenders to show a sign of financial instability or of risk management.
How Does A Credit Check Hurt Your Credit?
A credit check can have a negative impact on a person’s credit score, depending on the type of check and the number of checks conducted. Too many inquiries in a short period of time may cause a person’s score to drop. For example, a potential lender may view 10 hard inquiries within a six-month period as a sign of financial instability, and may deny a loan.
Aside from the number of credit checks, the type of credit check is also important. Hard credit checks may result in a more significant impact on a person’s credit score than a soft credit check. Additionally, hard credit checks stay on the individual’s credit report for two years, while soft credit checks stay on the report for just one year.
It is important to note that not all credit checks are equal; the effects of a credit check can vary depending on the type of credit being checked. For example, checking credit for a job or rental will usually have a lesser impact on a person’s score compared to a check for a major loan.
How To Protect Your Credit Score
There are several steps a person can take to protect their credit score when a credit check is conducted. First, it is important to ask potential creditors or employers for specifics about the type of credit check they will be conducting. Knowing the type of check can be beneficial, as it allows a person to better assess the impact it will have on their score.
It is also important to save any documents or communication related to the credit check. This may be helpful if there are inquiries that are more than two years old that have not been removed from the report. Finally, it is important to keep track of all credit checks conducted, as having too many inquiries can have a negative impact on the score.
Final Thoughts
A credit check has the potential to negatively impact a person’s credit score. It is important to understand the different types of credit checks and be aware of the potential effect on one’s credit score. Knowing the type of check and the number of checks can help protect one’s credit score.
Additionally, saving documentation related to the check and monitoring all credit checks can also be beneficial in protecting a person’s credit score. Overall, understanding the impact of a credit check can help individuals make informed decisions about their financial future.
