Does credit checking affect your FICO credit score?

Does credit checking affect your FICO credit score?

When lenders decide whether to approve your application for Payday LoanInstallmentPersonal, Auto or any other kind of loan, they need to know what risks they take. To measure it they check your credit score. “A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report information typically sourced from credit bureaus”. It can influence the amount, the terms, interest rates and actually your eligibility for the credit.

90% of lenders rely on FICO (Fair Isaac Corporation) score. It’s based solely on your credit report and is determined by such factors as payment history, the current level of indebtedness, types of credit used, length of credit history and new credit accounts. It ranges between 300 and 850 and divides all the borrowers into 5 groups:

Credit titlePoorFairGoodVery goodExceptional
Credit score 300-579 580-669 670-739 740-799 800+ 
What does it mean? You may be rejected. Or you may need to pay a fee or a deposit. Getting approved may be rather difficult and the rates are likely to be higher. You are an “acceptable” borrower. You may get better interest rates from lenders You will be easily approved for a loan. 

Must know: the border distinguishing between “Prime” (safe) and “subprime” (risky) borrowers is 640. But it’s very flexible as depends also on the general economic situation in the country and on the lender. Each company has their own criteria to estimate your eligibility. Even if you have poor score you can still be approved for the loan.

What’s the difference between Credit Score and Credit Report?

Your credit report is not the same as the score. It looks like a file containing information about your credit history. It usually is:

  • Name, date of birth, your addresses from the past 6 years, and any financial associations with another person, e.g. joint mortgage
  • Whether you are registered to vote at your address
  • County Court Judgements (CCJs), bankruptcies and Individual Voluntary Arrangements (IVAs)
  • Credit account information: how much you owe and whether you have paid on time, the age of the account (including mortgages, credit cards, store cards)
  • ‘Hard’ searches carried out on your account
  • Fraud that has been committed using your name or any fraud that you’ve committed using someone else’s name

This information is collected from banks, lenders and utility companies. It’s updated once a month and saves the data for half a year.

Your credit score is given to you by one of the three main credit reference agencies (Equifax, Callcredit and Experian). It shows you how your credit report will look to lenders (the higher the score, the better it looks). 

Credit Check: Hard and Soft. 

Every time you apply for a loan, you are subject to a credit check. It’s not a must but is included in the lender’s rights. As they consider your application they firstly will inquire some information from you on the phone or the Internet concerning your income, liabilities and assets. If these data satisfy their approval conditions, they may request a credit check which will be the key factor in whether to give you a loan or not.

Credit checks or inquiries can be soft and hard. It’s soft in case you check your own credit score or the lender preapproves you for a loan. If it’s already the matter of making a lending decision, it’s a hard inquiry. They usually occur when you apply for any kind of loan.

Soft inquiries can occur without your permission, but don’t worry – they won’t affect your credit in any way. Hard inquiries are made only with your allowance. It’s usually a typical part of a lending process. They can slightly lower your credit score and will stay on your report for two years.

Must know! If you are not sure which inquiry it is going to be, it’s better to ask the financial institution or company before deciding whether you’d like to proceed or not.

How does checking my Credit Score Hurt my Credit?

The effect of a credit check depends on its type, number and even the company which does it.

Soft inquiries won’t lower your score in any way. Hard pulls can make some influence but typically not much. As we’ve stated the score is determined by many factors, and they greatly outweigh the number of credit checks as most attention is paid to your payment history and utilization rate. However, if your history is not a perfect one, an additional hard inquiry could have a greater impact on your score. Lenders think you are potentially risky if you get a lot of credit checks which means you’ve applied for many loans and been constantly rejected.

Must know! Your own checking your credit score is considered a soft check and won’t affect your score.

Can I avoid hard inquiries?

If you want to apply for a new loan, it’s practically impossible to avoid a hard inquiry. But don’t get so obsessed with it. As we’ve already mentioned, credit checks play the least important part in evaluating your eligibility for the cash advance. To minimize the number of inquiries choose the lender carefully and think twice before applying. If you’re not sure you have the chances to get approved, maybe it’s better to look for other options to solve your financial problems. Or you can use the service to compare different lending companies. It will help you both to find the most suitable company and to check your approval chances.