Credit Inquiries do They Really Hurt my Score? Credit Lock vs Credit Freeze

Anytime you apply for new credit, you give the lender permission to request a copy of your credit report from a credit reference agency. If you check your report after these inquiries have been made, you will find a list of inquiries even if you don’t take out the credit. The good news is that the only inquiries that impact your FICO Scores are when you make several applications within a short period of time.

How Will Credit Inquiries Affect my Score?

If there is a change in your score it won’t be significant. If you apply for several lines of credit within a short time frame, these inquiries will be recorded on your credit report. Searching for new credit can be risky depending on the type of search that is performed. When the information displayed on your credit report suggests that you have applied for several different credit cards as opposed to shopping for the best rate on a single loan, such inquiries can lower your FICO scores.

The extent of the impact to your score will vary depending on the person; it basically depends on their current credit history. For the majority of people, one credit inquiry will deduct less than 5 points from their credit score. If you don’t have a long credit history with few accounts, inquiries can have more of an impact. According to statistics, people who have more than six inquiries on their credit report are eight times more likely to experience bankruptcy than those with no inquires. However, the most important factors that affect your credit scores are how you manage the credit that you currently have. Do you pay your bills on time? Do you live on your credit limit and pay the minimum balance each month? These factors will have a greater impact on your credit report than inquiries.

What is a Hard Inquiry?

Hard inquiries are also referred to as “hard pulls.” They typically occur when you authorize a financial institution such as a credit card, loan or a mortgage company to access your credit report when making a lending decision. A single hard inquiry on your report isn’t going to prevent you from being approved for credit. It may lower your credit slightly but not much.

With that being said, it’s definitely not a good idea to apply for several lines of credit in a short period of time. This will give lenders the impression that you are short on cash which makes you a high risk. Here are some examples of a hard inquiry:

  • Applications for an apartment rental

  • Applications for a personal loan

  • Applications for a student loan

  • Applications for a credit card

  • Applications for an auto loan

  • Applications for a mortgage

What is a Soft Inquiry?

A soft inquiry is also known as a “soft pull,” this is when a company or a person makes a credit inquiry as part of a background check. When credit card companies want to send you offers, they will make a soft inquiry. Soft inquiries are also made by employers before making a hiring decision.

Soft inquiries won’t have any effect on your credit score, whether they are recorded on your credit report is dependent upon the credit bureau. If they are recorded, you are the only person who they are visible to when you check your credit report. Since they are not related to an application for new credit, companies are unable to see them. Here are some examples of a soft inquiry:

  • A background check for employment verification

  • Insurance pre-qualification quotes

  • Credit card pre-qualification quotes

Credit Freeze/Credit Lock

If you are concerned about identity theft or companies making unauthorized credit searches under your name you can lock or freeze your credit. There is a difference between the two but they both essentially do the same thing.

What is a Credit Freeze?

A credit freeze is also referred to as a security freeze, this tool allows you to prevent access to your credit report. If an organization is unable to access your credit report they can’t approve you for credit which limits your risk of identity theft. The freeze won’t affect your credit score and when you want to apply for credit, you can life it temporarily. To activate a credit freeze, you will have to contact each credit bureau individually.

What is a Credit Lock?

A credit lock is exactly the same as a credit freeze, it performs the same function. The only difference is that a credit lock is activated straight away and you have full control over it via an app on your phone. Only Experian and TransUnion offer a credit lock. Equifax has a credit lock facility but it operates in the same way as the freeze, it takes 24 to 48 hours for a request to be processed.

Take Away

Unfortunately, identify theft is a very real problem in the United States. It is advised that you check your credit report often just in case any inquiries have been made about you without your permission. If you come across any errors, you have the right to dispute them with the credit bureau.

In general, multiple credit applications can have a negative effect on your FICO Scores; therefore, refrain from applying for too many lines of credit within a short period of time.

To learn more about credit lock or freeze for your clients or to send them to a credit repair professional, contact: Paul Quintal, EVP 603-205-2224

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