Why Does A Hard Credit Pull Affect Your Credit?
You’ve been warned, pulling your credit report may decrease your credit score. Of course, it’s not quite as simple as that. There are two types of credit inquiries, a soft pull, and a hard pull. Soft pulls do not affect your credit score, but hard pulls do. The question many may ask is, “Why does a hard pull affect my credit score?”
You can read this previous article right here at CleverDude to review the difference between a soft pull and a hard pull. As a quick review, here are some common examples of what kind of inquiries are considered soft vs hard:
Soft Credit Pull Examples
- Consumers accessing their own credit reports or scores
- Accesses to determine addition to mailing lists
- Credit providers periodically reviewing customer credit for limit increases or additional products
Hard Credit Pull Examples
- Application processing for new credit
- Housing rental applications
- Credit limit increase requests
It’s easy to see a distinct difference between a soft and hard pull. Soft pulls are generally simply gathering information, whereas a hard pull is in preparation for potentially adding a new line of credit. Adding a new line of credit will alter many of the factors that go into the calculation of the score including your debt to income ratio and a number of open credit lines. Additionally, research has shown that people who have recently opened a new line of credit are more likely to make late payments than someone who does not have a recently opened line of credit. This increases your risk factor and therefore results in a slight decrease in your credit score.
While it does decrease your credit score, you shouldn’t be too concerned about it. The drop is only 3-5 points, so if you had a healthy credit score before the inquiry, your score will continue to be so.
Being educated about your credit score is important. Knowing what makes up your credit score, what a hard vs soft pull are, and why a hard pull decreases your score are all important pieces of information that will help you manage your credit and your score so you are more able to obtain credit when you need it.