How Many Times Do Lenders Pull Credit?

When seeking new credit, consumers often encounter inquiries into their financial history. These inquiries, conducted by lenders, are a standard part of assessing creditworthiness. Understanding how these checks work and their potential effects on your credit profile is important for managing your financial health.

Understanding Credit Pulls

A credit pull, also known as a credit inquiry, occurs when a party requests to view your credit report or score. These inquiries are categorized into two main types: soft inquiries and hard inquiries. Their distinction is significant due to their differing impacts on your credit score.

A soft inquiry, or soft pull, happens when your credit information is accessed for purposes other than a formal credit application. This type of inquiry can occur when you check your own credit report, or when a potential employer conducts a background check. Credit card companies and lenders may also perform soft inquiries for pre-approval offers or account reviews. Soft inquiries do not affect your credit score and are often not visible to other lenders.

In contrast, a hard inquiry, or hard pull, typically occurs when you formally apply for new credit, such as a mortgage, auto loan, personal loan, or credit card. This type of inquiry requires your explicit permission. Lenders use hard inquiries to assess your credit risk before making a lending decision, examining your payment history, existing debt, and other financial behaviors. Hard inquiries can temporarily affect your credit score and remain on your credit report for up to two years.

When Lenders Pull Credit

Lenders typically pull credit at various stages of the application process. The type of pull can depend on the product and the stage. For many credit products, an initial soft inquiry might be performed for pre-qualification or pre-approval, allowing you to gauge eligibility without impacting your credit score.

However, for major loans like mortgages or auto loans, even an initial pre-approval often involves a hard inquiry. Once a formal application is submitted for any credit product, a hard inquiry is almost always initiated. This review helps the lender determine the specific terms and interest rates they can offer.

For certain types of loans, specifically mortgages, auto loans, and student loans, lenders may conduct multiple hard inquiries throughout the process. This can include an initial pull during pre-approval, and potentially another pull during underwriting or just before closing. This final check ensures no significant new debt has been incurred since the initial application.

Credit scoring models recognize that consumers often shop around for the best rates on these specific loan types. Therefore, multiple hard inquiries for the same type of loan within a short timeframe are often grouped and treated as a single inquiry for scoring purposes. This “rate shopping” window typically ranges from 14 to 45 days, depending on the credit scoring model used. This allows consumers to compare offers from different lenders without negative impact on their credit scores.

Impact of Multiple Credit Inquiries

Hard inquiries can cause a small, temporary dip in your credit score. A single hard inquiry might reduce a FICO Score by fewer than five points. The exact impact can vary depending on your overall credit history and the number of other inquiries. While hard inquiries remain on your credit report for up to two years, their effect on your credit score usually diminishes after the first 12 months.

Multiple hard inquiries in a short period, especially for different types of credit, can have a more pronounced negative effect. This pattern might suggest a higher risk to lenders. For mortgages, auto loans, and student loans, credit scoring models account for rate shopping behavior, grouping multiple inquiries within the typical 14 to 45-day window as a single inquiry.

This rate shopping benefit does not apply to credit card applications. Each credit card application typically results in a separate hard inquiry that can individually impact your score. Applying for numerous credit cards within a short span can lead to a more significant accumulation of negative impacts on your credit score.

Managing Credit Inquiries

Managing credit inquiries involves a proactive approach to your financial decisions. Only apply for credit when genuinely needed. Unnecessary applications can lead to multiple hard inquiries that, while individually small, can collectively impact your credit score.

When shopping for installment loans like mortgages, auto loans, or student loans, utilize the rate shopping window. Submitting all applications within this 14- to 45-day period ensures multiple inquiries for the same loan type are treated as one, allowing you to compare offers from various lenders without excessive credit score impact.

Regularly checking your credit reports is important. You are entitled to a free copy of your credit report from each of the three major credit bureaus annually. Reviewing these reports allows you to identify any unauthorized inquiries or errors, which can then be disputed. Maintaining a healthy credit profile overall, through consistent on-time payments and responsible credit utilization, helps to minimize the impact of any necessary hard inquiries.