You’ve probably heard something about hard credit checks actually hurting your credit score, which can be pretty scary. That can make anyone fearful when applying for a loan, or maybe even cause you to think twice about checking your credit file. That’s understandable but knowing all about hard credit checks will empower you to do things like get a bad credit car loan in Barrie and get your financial life on track. As they say, the truth will set you free.
Keep reading to learn how hard credit checks affect your credit score and what you can do about them. It’s something you can very much manage, instead of just cowering in fear or worrying endlessly.
Hard Vs Soft
First off, it’s necessary to understand the difference between hard and soft credit checks. They’re not the same and their effects are quite different. These two different types of credit checks or pulls are actually greatly misunderstood by the general public, so as you go for a bad credit car loan in Barrie you will have the upper hand with the following knowledge.
A soft credit check happens when you yourself pull your credit report. Soft credit pulls are also generated when you have an employer or potential landlord look at your credit. Sometimes credit card companies and other potential lenders will do a soft credit check to pre-approve you for a loan, then send you an offer in the mail. When they perform a soft pull, they don’t see everything on your credit report like when they do a hard pull. In some circumstances, a lender or someone else might only need to see a little bit of information off your report, making this an appropriate solution.
There is absolutely no impact on your credit score from any number of soft inquiries. You could literally have hundreds of them and not suffer one bit from it. This means you can monitor your credit and have your employer or others perform soft credit checks without any worry. As you’ve probably already guessed, this isn’t really true for hard credit checks.
Whenever you apply for credit like a bad credit car loan in Barrie and authorize a company to review your credit file, it creates a hard inquiry that gets recorded. This is reflected on your credit report, so anyone else who pulls it can see the other company did the same thing.
This means a hard credit check will help prove when you applied for a new credit line, like a bad credit car loan in Barrie. It leaves a trail, showing to potential creditors if maybe you have a habit of applying for loans constantly. That’s usually not viewed as a positive thing, so it’s best to be selective when you’re applying for any kind of credit. This is because hard credit checks do create a negative effect for your credit score.
How Long Do Hard Credit Checks Stick Around?
Since they help potential lenders to see how often you try to get new credit lines like a bad credit car loan for Barrie residents, hard inquiries stick around on your credit report for longer than you might suspect. While they might disappear sooner, they can remain visible for up to 36 months, depending on the credit bureau and other factors.
That might sound like a long time, and it is by design. This factor helps paint a more complete picture of how you utilize credit for when you apply for another loan. Anyone considering extending a credit line to you wants as much useful information as possible before making that decision, which is exactly what hard credit checks help to supply. If there’s a pattern of your consistently trying to get credit and being rejected, a potential lender might view that as a warning of something serious going on.
Size of Impact
You might hear from someone that a hard credit check from something like a bad credit car loan in Barrie will do a certain number of points in damage to your credit score for a certain period of time, and that person will pass it off as absolutely the truth for everyone. While that person likely is just trying to be helpful, there’s no way they can calculate how much a hard inquiry will affect your credit score.
Credit scores are calculated using an algorithm which has been carefully crafted for decades. Multiple factors are used to create the final score, with hard credit checks on your report being just one of many. That means exactly how much of a drop to your score a hard credit check creates really depends on what else is on your report. In some cases, a hard credit inquiry might not even lower your score at all, or it could have such a minimal effect you wouldn’t notice it.
Most likely, a hard credit check will only lower your score by just a few points. The longer it sits on your report, the less of an effect it has. Just remember that when you apply for new credit accounts, that inquiry could still be showing up from a while ago, so it might affect your ability to qualify for the loan. That part is up to the lender and their own process of qualifying applicants.
Shopping For Loans
When you’re trying to get something like a bad credit car loan in Barrie, you’re probably going to be applying for a loan with several lenders. That means several hard credit checks will appear on your report. Many Canadians worry this will actually hurt their chances of qualifying for a loan, as well as tanking their credit score for the next several months or year.
What a lender thinks when it sees several recent hard credit checks, or a series of them grouped together in the past, is that you were obviously shopping for the best rate on a loan. It’s not unusual to shop around, especially when it comes to more expensive items where small changes can make a big impact on your finances. While there are never guarantees, most lenders are understanding of that and so they won’t penalize you for shopping before getting a loan.
But wait, there’s more. As you’re shopping for a loan and there are several hard credit checks on your report, they actually count as just a single inquiry. This is a general rule, so it doesn’t always apply. Just how close together all the credit checks need to be so they only impact your credit score as one isn’t always clear, but they can range from 14 to 45 days. In other words, you only have so much time to apply for loans before they start to create multiple hard credit checks on your report, which can in turn have a negative effect on your credit score.
This rule of several inquiries counting as one applies to things like a bad credit car loan in Barrie or a mortgage application. You need to know that it does not apply to credit card applications under any circumstance. Each time you apply for a credit card it creates a hard inquiry on your credit file and has an impact on your score. This is why you should be extremely selective about which credit cards you apply for, only filling out applications for cards you have a good chance of getting and will actually use.
Applying Without Inquiry
Not all lenders perform a hard credit check when you apply for a loan. This can be important for anyone who doesn’t have great credit but wants to establish some positive history.
Carefully researching credit cards, bad credit car loans for Barrie residents, or other credit opportunities can help you uncover if a hard credit check will be used in the qualification process. Some lenders only do a soft credit check, while others proudly declare they don’t pull your credit at all.
As always, proceed with caution when securing a new line of credit. You’re making a big, often long-term commitment which can have a significant impact on your financial future. It’s best to not rush into such a situation, but instead to study things out before settling on an option.
Managing Your Inquiries
If you’re concerned about how hard pulls affect your credit score, the real answer is to effectively manage your credit inquiries. This goes beyond worrying and empowers you to take control of this aspect of your credit file. Of course, there are other things like your payment history and credit usage which impact your credit score, so don’t neglect to address those areas as well.
Follow these tips to effectively manage your credit inquiries.
Apply For Credit Sparingly
Don’t apply for a credit card, mortgage, or bad credit car loan in Barrie or anywhere else just because someone tells you to do it. The only time you should apply for credit of any time is when you actually need it to address a necessity or to improve your life significantly.
This includes establishing positive credit so you can qualify for better interest rates on loan in the future, securing a car so you can get around, and being able to own a home for future financial security.
When you go to different venues, you might be confronted by people tasked with getting you to sign up for a credit card offer. Unless you already know about the card and feel it’s a good fit for your life at the moment, you should absolutely avoid those offers. The people working to get signups often promise some immediate reward like a shirt, but you need to be thinking about your long-term future instead.
Shop For Rates Quickly
When you’re trying to secure a loan for a car or home, it’s best to shop for the best rate quickly. As you’re already learned, this will help ensure all those hard credit checks will only count for one instead of several. Too many hard pulls on your report could make the difference in your score so you might not qualify for as good of an interest rate on a loan, which is somewhat ironic.
This means you need to have a plan in place for where you’re going to apply for a loan. You need to be organized and decisive when you put this plan into action, instead of applying for one loan, then two months later applying for more, and so forth.
Monitor Your Credit
You should be checking your credit file on a regular basis, perhaps even monthly, for any new hard inquiries appearing on it. If any show up that you didn’t initiate, you need to report them as possibly fraudulent. It might even be a good idea to place a fraud alert on your credit file if this happens, just in case.
Not keeping track of your credit could mean someone successfully getting several hard inquiries and even a loan or two placed on your report. If you find out about this type of fraud when applying for a loan, the result could be that you don’t get the loan until you get the situation straightened out. If you know about fraud on your account before you go to get new credit, you have time to fix everything, so your application hopefully results in a getting approved at a good interest rate.