A person's credit report can be checked by many different parties beyond simply lenders. While a credit score is not public information, individuals and organizations with a valid interest in the score, such as prospective employers and landlords, may review it. However, like the old scientific axiom says, "You can't observe a system without changing it," some of these investigations will in fact shift an individual's score, generally moving it down a few points.
"Soft" Inquiries
There are two main kinds of credit report inquiries: hard inquiries and soft inquiries. A soft inquiry is an inquiry made by a party checking an individual's credit score for reasons other than to quote him terms on a loan for which he applied. For example, an inquiry by a landlord deciding whether to offer an apartment to a tenant would be considered a soft inquiry. Soft inquiries, while listed on a credit report, do not affect an individual's credit score.
"Hard" Inquiries
A hard inquiry is an inquiry made by a creditor whom the individual has asked to quote terms on a loan. Unlike soft inquiries, which can made for many reasons, hard inquiries positively signal that an individual is seriously considering taking out new credit. As with soft inquiries, hard inquiries are noted on a credit report. However, unlike soft inquiries, each hard inquiry will cause an individual's score to drop by several points.
Loss of Points
Hard inquiries cause a person's credit score to drop because, to credit rating agencies, they represent compelling evidence that the individual is considering taking on more debt. This suggests to the agencies that the individual may be short of funds or approaching default on one of his outstanding loans. By being perceived as more of a credit risk, his score drops slightly. Yet, because this is relatively weak evidence, the drop is only moderate.
Related Inquiries
The prospect of shopping for a loan and having half a dozen lenders checking your credit score may seem to raise the possibility that all these hard inquiries will do considerable damage to your credit score. However, credit reporting agencies generally classify multiple inquiries made in a short time period, particular by lenders who issue similar types of loans, to be indicative that the individual is shopping for a single loan. These inquiries therefore will only be counted as a single inquiry.
0 comments:
Post a Comment