Why Does Looking At Your Credit Score Cause Your Credit to Drop?
Your credit score is a crucial factor when it comes to your financial well-being. It determines your eligibility for loans, credit cards, and even impacts your ability to rent an apartment or secure a job. With such significance placed on your credit score, it’s natural to want to keep a close eye on it. However, you may be surprised to find that simply looking at your credit score can cause it to drop. In this article, we will explore why this happens and address some frequently asked questions regarding this phenomenon.
1. Why does looking at your credit score cause a drop?
When you check your own credit score, it is considered a “soft inquiry” or a “soft pull.” These inquiries do not affect your credit score and are not visible to lenders or creditors. However, when a lender or creditor pulls your credit report for loan approval or credit application purposes, it is considered a “hard inquiry” or a “hard pull.” Hard inquiries can impact your credit score and may cause it to drop.
2. How do hard inquiries affect your credit score?
Hard inquiries can lower your credit score by a few points. This is because they suggest to lenders that you are actively seeking credit and may be at a higher risk of defaulting on your payments. Multiple hard inquiries within a short period can have a more significant impact on your credit score.
3. How long do hard inquiries affect your credit score?
Hard inquiries typically stay on your credit report for two years. However, their impact on your credit score diminishes over time. After a few months, the effect becomes less noticeable, and after a year, it may not affect your credit score at all.
4. Do all hard inquiries affect your credit score?
Not all hard inquiries will negatively impact your credit score. For example, when you apply for a mortgage or an auto loan, multiple inquiries within a specific period (usually 14-45 days) are treated as a single inquiry. This allows you to shop around for the best loan terms without excessively damaging your credit score.
5. Can checking your credit score too frequently harm your credit?
Checking your own credit score does not harm your credit. As mentioned earlier, it is considered a soft inquiry and has no impact on your credit score. You are encouraged to monitor your credit regularly to stay informed about any changes or inaccuracies.
6. Are there any exceptions to the credit score drop when checking your credit?
Yes, there are exceptions. Some credit scoring models, like FICO® Score 9 and VantageScore 3.0, distinguish between rate shopping and other types of credit inquiries. This means that if you’re shopping for a mortgage, auto loan, or student loan, multiple inquiries within a specific timeframe will only count as a single inquiry, minimizing the impact on your credit score.
7. How can you minimize the impact of hard inquiries on your credit score?
While you can’t avoid hard inquiries altogether, you can take steps to minimize their impact on your credit score. First, be selective when applying for credit and only do so when necessary. Additionally, if you’re rate shopping for a loan, do it within a specific timeframe to ensure the inquiries are treated as a single inquiry. Finally, focus on maintaining a healthy credit history by making timely payments, keeping credit utilization low, and avoiding excessive credit applications.
In conclusion, looking at your credit score itself does not cause a drop. However, the hard inquiries that result from lenders pulling your credit report can impact your credit score. It is essential to understand the distinction between soft and hard inquiries and be mindful of the potential impact on your credit score. By being aware of how credit inquiries affect your score and taking steps to minimize their impact, you can maintain a healthy credit profile.