Why Does My Credit Score Go Down When I Check It?
Why does your credit score seem to drop when you check it? Understand the nuances of credit inquiries and how they truly affect your financial health.
Many individuals wonder if merely checking their credit score could cause it to drop. This concern is understandable, as the financial landscape often presents complex information. However, the common belief that any check on your credit history will negatively impact your score is generally a misconception.
The reality is that whether your score changes depends entirely on the specific type of credit review being performed. Not all inquiries into your financial standing carry the same weight or produce the same outcomes. Understanding the distinctions between these different types of checks is important for managing your financial health effectively.
Understanding Credit Inquiries
A credit inquiry represents a formal request for information from your credit report, which details your borrowing and repayment history. These requests are made by entities that need to assess your financial reliability. The three major credit bureaus—Equifax, Experian, and TransUnion—maintain these comprehensive reports.
Credit inquiries are broadly categorized into two main types: soft inquiries and hard inquiries. The difference between these two categories lies in their purpose and impact on your credit score. One type is primarily for informational purposes, while the other signals an intent to take on new debt.
Soft Inquiries and Your Credit Score
A soft inquiry occurs when a person or company reviews your credit report without you formally applying for new credit. These types of inquiries are generally for informational or pre-screening purposes. Because they are not associated with a new credit application, soft inquiries do not affect your credit score.
When you check your own credit score through a credit monitoring service or directly from one of the credit bureaus, this is a soft inquiry. Pre-approved credit card offers, insurance companies checking your credit for a quote, and employer background checks are also soft inquiries.
Hard Inquiries and Your Credit Score
A hard inquiry occurs when a lender checks your credit report because you have applied for new credit. This type of inquiry signals to credit scoring models that you are actively seeking to take on additional debt. Because taking on new debt can increase your financial risk, a hard inquiry often results in a slight, temporary decrease in your credit score.
Common examples of hard inquiries include applying for a new credit card, a mortgage, an auto loan, or a personal loan. The impact on your score is usually minor, often a drop of 5 to 10 points. Hard inquiries remain on your credit report for approximately two years, though their impact on your score generally diminishes after a few months. Multiple hard inquiries within a short period, especially for different types of credit, can be viewed as a higher risk and may lead to a more significant cumulative score reduction.
Checking Your Credit Score Safely
You can regularly monitor your credit score and review your credit report without negatively impacting your financial standing. Various resources are available to help you stay informed about your credit health through soft inquiries. Utilizing these resources allows you to track changes and identify any inaccuracies without penalty.
Many credit card companies and financial institutions offer free access to your credit score. Several reputable credit monitoring services also provide free access to your score, often updated monthly. The Fair Credit Reporting Act (FCRA) entitles you to a free copy of your credit report from each of the three major credit bureaus once every 12 months. You can access these reports through AnnualCreditReport.com, which is the only federally authorized website for this purpose.