Does running a credit check lower your credit score? This is a common question among individuals who are considering taking out a loan or applying for a credit card. The answer is not straightforward and depends on the type of credit check being conducted. Let’s delve into the details to understand how credit checks can impact your credit score.
Firstly, it’s important to differentiate between two types of credit checks: hard inquiries and soft inquiries. A hard inquiry occurs when a lender checks your credit score to evaluate your creditworthiness before approving a loan or credit card. This type of credit check can temporarily lower your credit score by a few points. On the other hand, a soft inquiry is when a lender checks your credit score for pre-approval offers or when you check your own credit score. Soft inquiries do not affect your credit score.
When you apply for a loan or credit card, the lender will perform a hard inquiry on your credit report. This can happen when you apply for a mortgage, auto loan, personal loan, or credit card. Each hard inquiry can cause a slight drop in your credit score, but the impact is usually minimal. However, if you apply for multiple loans or credit cards within a short period, the cumulative effect of hard inquiries can be more significant.
It’s worth noting that the impact of a hard inquiry on your credit score diminishes over time. Credit scoring models typically consider the age of the inquiry when calculating your credit score. Therefore, if you have a good credit history and the rest of your credit profile is strong, the impact of a hard inquiry may be negligible.
On the other hand, soft inquiries do not have any negative impact on your credit score. These inquiries occur when you check your own credit score, when a lender pre-approves you for a credit card, or when a company checks your credit score for employment purposes. Soft inquiries are visible on your credit report, but they do not affect your credit score.
In conclusion, while running a credit check can lower your credit score, the impact is generally minimal and temporary. Hard inquiries can cause a slight drop in your credit score, but the effect is usually short-lived. Soft inquiries, on the other hand, do not affect your credit score. To protect your credit score, it’s essential to manage your credit wisely and avoid applying for multiple loans or credit cards within a short period. Additionally, regularly checking your credit score can help you stay informed about your credit health and identify any potential issues.
