Does Your Credit Score Drop When Someone Checks It?

If you’re getting ready to make a big purchase — say a car, an RV or a house — you’ve probably had someone tell you not to check your credit report or apply for any new credit because it can impact your score. But, does your credit score drop when someone checks it? Is this advice even valid?

What these well-intentioned folks are probably trying to warn you about is the possibility that your credit score will take a hit when an inquiry is made into your credit report. And while that may be true in some instances, it isn’t always the case. It’s worth noting the differences, however, so you can go into that next large purchase with confidence.

• Hard inquiries — like applying for an auto loan — can lower your credit score.
• Soft inquiries — like checking your own credit score — will not lower your score.

One other thing to note regarding any potential impact on your credit score is that inquiries made by an employer, landlord, or insurance company, for example, are considered a form of soft inquiry and won’t affect your score.

The Bottom Line is It Depends on the Type of Inquiry

To understand how an inquiry can affect your credit score, let’s review how FICO scores are calculated.

5 factors that determine your FICO credit score:

• payment history
• amounts owed (utilization)
• length of credit history
• types of credit you have
• new credit you’ve applied for

It’s this last category that comes into play when we’re talking about the impact a credit inquiry can have on your score.

Hard vs. Soft Inquiries

A credit inquiry shows up whenever your credit report is accessed. That means applying for a loan or a new credit card will generate an inquiry record on your report.

Lenders make credit inquiries to check your history of making payments on time and your general credit-worthiness, but they’re not the only ones checking your credit report. Other parties, such as potential landlords, may also use your credit report to get an idea of your financial responsibility.

Hard Inquires: Mortgage Applications, Auto Loans, Credit Approvals, Etc.

Hard inquiries generated by lenders and credit issuers can remain on your credit report for a year or longer. If you have a lot of these entries, it could appear as if financial trouble is requiring you to apply for more credit — even if that’s not the case.

And it can be a big red flag for lenders and may even lower your overall credit score. Most score models, including FICO, make allowances for “rate shopping” by ignoring related inquiries made within a 30-day period.

Soft Inquires: Pre-Approval Offers, Background Checks, Etc.

If you’re simply checking your credit report and score for accuracy prior to applying for that big loan, these are called soft inquiries and are recorded differently on your credit report. Again, inquiries made by a landlord, employer, or insurance company are soft inquires and will not affect your score.

When you do this, it will show as a soft inquiry made by you and will not be seen negatively by lenders. So go ahead and check your credit report and score. You should do so once annually anyway.

What It Means for Your Credit Score

Since applying for a loan or new credit card triggers a hard inquiry in your credit report, this can have the effect of lowering your credit score. However, it may not be as bad as it sounds. The portion of your credit score attributed to new credit you apply for is only 10% of your overall score, and it takes more than a single or even a couple of hard inquiries to move the needle.

While it might not be a great idea to apply for a dozen new credit cards right before you need that major loan, a hard inquiry or even two is unlikely to have a huge impact.

That said, it’s always a good thing to keep your score as high as possible. So go ahead and check your credit report to make sure it’s accurate, and dispute any entries that don’t belong to you. The better your credit score, the more likely you are to be approved and receive the best interest rate possible.