What Is A Soft Inquiry
Soft inquiries typically occur when a person or company checks your credit as part of a background check. This may occur, for example, when a credit card issuer checks your credit without your permission to see if you qualify for certain credit card offers. Your employer might also run a soft inquiry before hiring you.
Unlike hard inquiries, soft inquiries wont affect your credit scores. Since soft inquiries arent connected to a specific application for new credit, theyre only visible to you when you view your credit reports.
Factors That Affect Your Credit Score
Even if youve done your research and decided which card you want to start with, you should not apply for it until you understand how your credit score is calculated.
Heres a breakdown of the factors involved:
- 35% payment history:;Its no surprise that the category that carries the most weight is your on-time payment history.
- 30% amounts owed:;Also referred to as utilization rate, this is the total balance on all your credit cards divided by your total credit limit.
- 15% length of credit history: Also known as the average age of accounts. The longer your credit history, the higher your score will be.
- 10% credit mix:;This refers to the various lines of credit you may have, including credit cards, student loans, a car loan, a mortgage, etc.
- 10% new credit: New inquiries on your credit report account for 10% of your score.
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Are Cosigners Affected By Rent Payments
Renters with bad credit or no credit may need a cosigner to get approved for an apartment. It’s important to know how cosigning will affect your credit before agreeing to put your name on the line for an apartment you won’t live in
Cosigning a rental agreement will impact your credit the same as if you were the sole tenant of the apartment, even if you’re not living in the apartment you cosigned for. When there’s a credit check for the application, the cosigner’s credit is impact. Any payment reporting will be included on the cosigner’s credit report as well.
A debt collection resulting from non-payment will impact the cosigner’s credit, even if monthly payments weren’t regularly reported to the credit bureaus. Many landlords don’t contact a cosigner until the balance is seriously past due. Cosigners have to be even more diligent about making sure monthly rent payments are made on time so their credit isn’t negatively impacted by late rent payments.
Timely rent payments may help your credit if your landlord subscribes to a credit reporting service or if you pay for a third-party reporting service. Late payments, on the other hand, often only affect your credit if a severely late balance is reported by a collection agency.
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How Your Credit Score Is Calculated
Lets review how your credit score is calculated. Remember that credit is a tool you can use to pay for something without physically having the cash in your wallet, on the promise that you will repay it. Typical forms of credit include: credit cards, lines of credit, mortgages, and student loans. How you use your credit is ultimately what determines your credit score and is calculated based on the following key criteria:
Debt Consolidation: Negative Effects On Credit
While every debt consolidation option has its own unique effect on your credit rating there are a few negative effects you should prepare yourself for:
- Debt Consolidation Cant Help Bad Habits: How you treat your credit after youve consolidated your debts is extremely important. If you simply fall back into old habits youll end up hurting your credit score again.
- Lower Credit Age: While it might seem like a good idea to close a credit account to prevent yourself from using it, this will, in fact, hurt your credit score. One of the factors that affect your credit score is the average age of your credit accounts. Closing old ones and open new ones will, unfortunately, lower your average credit account age which will negatively impact your credit.;
- Hard Inquiries: When applying for a debt consolidation loan, lenders will perform a hard credit check which results in a short-term dip to your credit. This usually isnt a big deal and is quickly regained as you pay back your debts.;
What Is A Credit Inquiry
Anytime someone checks your credit report including yourself, lenders, banks or even landlords, its recorded on your report as a soft or hard credit inquiry.
Each of the three credit bureausEquifax, Experian and TransUnionkeep track of the inquiries on your report because it can say a lot about the risk you pose to lenders. While lenders arent too worried about soft inquiries because it doesnt impact your credit score, they do take caution around hard inquiries. In the lenders eye, multiple hard inquiries can indicate youre taking on more credit than you may be able to afford.
For example, according to FICO, People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy.
How Long Do Inquiries Stay On Your Credit
Most credit reporting is voluntary. For example, credit card issuers arent legally required to share customer information with the credit bureaus. The credit bureaus arent required to include credit card accounts on credit reports, either. Account information is reported and included in credit reports because it helps the companies involved boost their bottom lines.
Inquiries are different. The credit bureaus are required by law to disclose when they give anyone access to your credit information. According to the Fair Credit Reporting Act , most inquiries must stay on your credit report for at least 12 months. Employment inquiries have to remain on your credit report for 24 months.
Typically, the credit reporting agencies opt to keep inquiries on your credit reports for two years. Yet FICO only considers hard inquiries that occurred in the last year. Once a hard inquiry is older than a year, it has zero influence on your FICO Score.
VantageScore once again is more lenient where inquiries are concerned. If a hard inquiry lowers your VantageScore credit score, it will generally rebound in three to four months .
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Can Your Credit Score Affect Your Employment
Having bad credit can make it difficult to get approved for a loan or a credit card but in some cases, it can also prevent you from getting a job.
According to a 2018 National Association of Professional Background Screeners study, 47 percent of employers run credit or financial background checks on;candidates. Whether or not youll be one of those candidates;depends on the type of job youre applying for.
Why Employers Care About Your Credit History
Before we go any further, its important to know prospective employers cannot see your credit score. Instead, they can check your credit report, which is what your score is based on.
But why do;employers care about your credit report at all? Simply put, certain aspects of the report can be indicative of habits or behaviors they;dont;want in the workplace.
For example, if you have several delinquent credit accounts, that may signal youre unorganized or dont keep your word. If you have excessive debt or several credit cards with high balances, it can suggest youre desperate and might be more likely to steal from or defraud the company.
The belief is that putting in a position with access to large amounts of cash or in any other kind of financial role could provide them the means to resolve their financial difficulties the wrong way, says Adam Calli, a human resources consultant with Arc Human Capital.
Which Jobs Are More Likely to Require Credit Checks?
How to Prevent Your Credit From Affecting Your Employment
What Happens To Your Credit Score When You Apply For A Job
The good news is that your credit score isnt impacted by employers checking credit scores. Its considered a soft inquiry, so no point are lost due to the check. Its also worth noting that employers can only check your credit with your consent. Theyre also required to notify you prior to rejecting your application based on credit information.
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Managing Credit In Times Of Inflation
Strategies to consider for managing your finances in times of inflation include diversifying your investment holdings, seeking a raise or starting a “side hustle” to boost your income. Here are a few other basic steps:
Inflation isn’t a major influence on credit, but when prices are increasing, making good financial choices can help you build or maintain a strong credit profile, so you can borrow money when you really need it. You can check your credit report and get your credit score for free with Experian to make sure you’re still on solid ground.
Fail To Check Your Credit Report For Errors
Why it hurts you: Mistakes or fraud could be hurting your credit.
The problem can be as simple as having a too-common name or a name that frequently gets misspelled. OK, so theres not a lot you can do if your name is John Smith.
Still, you should be aware that your common name can make you more prone to mistaken identity when it comes to your credit report, which in turn could make it more difficult for you to secure a card. According to the Federal Trade Commission, 1 in 5 Americans have mistakes in their credit reports;big enough to affect their credit scores.
Some mistakes are easy, but nagging. For Revvell Revati, a natural health practitioner in Altadena, California, credit card companies often misspell her first name with a W instead of two Vs.
Its an ongoing problem, she said. I recently attempted to get a credit card and was turned down. Ive been accused of fraud.
If you suspect that the problem is more serious ;maybe another person is trying to steal your identity to open accounts in your name ;you may want to consider installing a . That prevents anyone including you or someone pretending to be you from opening new accounts in your name.
People with common names or misspelled names should also review their credit reports frequently.
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Ways To Help Manage Hard Credit Inquiries
When you know what can trigger hard inquiries, you may be able to better manage their impact.
Here are some other tips to help you manage hard inquiries on your credit:
is another easy way to monitor your credit. With CreditWise, you can stay on top of your VantageScoreÂ® 3.0 credit score and TransUnion credit report for freeâeven if youâre not a Capital One customer. With the CreditWise Simulator, you can even explore the potential impact of your financial decisions before you make them.
How To Minimize The Number Of Hard Inquiries You Have
Hard inquiries aren’t bad to have; even if they may cause a slight temporary dip in your credit scores; but it can be good practice to know how to minimize the number of inquiries on your credit report.
Below, CNBC Select rounded up some general guidelines to keep track of your hard inquiries:;
- Don’t apply for several credit cards within a short timeframe. Experts generally recommend only applying for a credit card every six months.
- Only apply for credit cards you would actually benefit from using.
- Make sure you check your credit score beforehand . You can do so for free with most card issuers, using apps such as Discover’s Credit Scorecard and Chase’s Credit Journey .
- Before applying for a credit card, shop around with prequalification tools, which allow you to check your likelihood of qualifying for a card without damaging your credit.
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Difference Between Credit Reports And Credit Scores
While your credit score and credit report are related, they’re not the same thing. Your credit score is a single three-digit number that signals your credit health to lenders and creditors. Your credit report doesn’t include your credit score. The report, which includes credit activity, is used to calculate your credit score.
Child Support Collections Can Impact Your Credit
Just like with lending and borrowing accounts, credit reporting companies follow and report collections. If your child support is sent to a collections agency by the city, state, or other agency, you can expect that collection to show up on your credit report.
*If referred to collections, a collection account would become part of your credit history. Any collection account is extremely negative and would be reflected as such by credit scores, *according to Griffin.
If not resolved, collections stay on a credit report for up to seven years and that can have a significant negative result for your credit score.
Everyones credit history is unique, so the impact of child support collections may vary from one person to the next. But if it does show up in collections on your credit report, delinquent child support can affect your credit score.
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Consequences Of Changes To Your Credit Report
Prior to the passage of the CARD Act in 2009, credit card issuers would routinely increase customers credit card interest rates to the default rate if the customer had late payments on any account on their credit reports.;This rate increase was often triggered even if the late payments occurred with another lender entirely and not with the credit card issuer itself.;This practice was known as universal default.
The CARD Act did limit retroactive rate increases, but you would be mistaken if you believe that the practice of universal default has been completely eliminated.;In fact, a credit card issuer can still impose a retroactive rate increase, but it can now only be imposed if the customer has missed payments with the card issuer directly.
Even though credit card issuers are more limited regarding universal default practices, there are plenty of other adverse actions which are still allowed whenever a customer has negative activity appear on his or her credit reports.;Customers who miss payments with another, unrelated lender could still face consequences such as lower credit limits, increased interest rates on future purchases, and even account closings.
Naturally, the best way to protect yourself from universal default clauses and other adverse actions from your credit card companies is to always pay your bills on time, and in general never revolve a balance on your credit cards from one month to the next.
If Youve Ever Seen Your Credit Scores Drop A Few Points After Applying For A Credit Card You Know The Impact A Hard Inquiry Can Have On Your Credit
Hard inquiries generally occur when a lender or credit card issuer checks your credit when making a lending decision, and you typically have to authorize them.
But what about simply checking if you prequalify for a credit card? Can a prequalification hurt your credit scores?
The simple answer is no, but the full picture gets a bit more complicated.
Prequalification is typically considered a soft inquiry, and it wont hurt your credit all on its own. In fact, it can be a helpful tool for lowering your risk of being rejected for a new credit card.
But prequalification is not a guarantee of approval, and if you want that new credit card, youll ultimately have to apply for it and face the hard inquiry that goes along with it.
Before you apply for a prequalified card, its important to understand what prequalification means in the first place.
If youve shopped around for credit cards online, youve likely seen tools that allow you to check whether youre prequalified before applying. Maybe youve even received an offer in the mail informing you that youre prequalified for a certain card.
So, how do the determine that youre prequalified? In other words, how do they predict that youll be approved?
Well, it turns out theyre not actually mind readers.
The companies may then reach out to these consumers with offers for specific cards theyre likely to qualify for, based on this initial information. Since they didnt get this information through a hard inquiry, your .
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Are There Business Credit Cards Available That Don’t Require A Personal Guarantee
Business credit cards exclusively rely on your business credit and won’t look at your personal credit history. However, your company will need to have an established track record and be able to present financials, such as business tax returns, profit and loss reports and business bank statements.
Brex, Stripe, Silicon Valley Bank and Ramp offer business credit cards with no personal guarantee. Your bank or credit union may also offer one.
How To Check Your Credit Scores Safely
Ordering or checking your own credit score will never result in a hard inquiry, only a soft one. You wont have to worry about your credit score dipping when you order it on your own. Here are several ways to view your credit score.
Check with your bank
Banks often provide free credit scores for their customers. This can be a way to view the status of your credit without having to pay for a score. Remember, though, that the score your bank sends might not be the FICO® credit score that mortgage and auto lenders use. The score that banks and other financial institutions send, though, should be similar, and will give you an idea of how strong your credit is.
Check with your credit cards
You can also pay for your FICO® score from any of the three national credit bureaus of Experian, Equifax or TransUnion. Prices vary but should cost about $15.
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