Beginner’s Guide: 6 Valuable Facts You Need to Know About Credit Enquiries
Did you know that every time you apply for credit, a lot of invisible activity goes on behind the scenes? Whether it’s from a big bank, a car dealership, a real estate agent, or a retailer, applying for any line of credit instantaneously prompts companies to check your credit report. They can either do this by using soft inquiries, or hard inquiries. The United States Federal Trade Commission (FTC) explains that “A credit report shows your bill payment history, current debt, and other financial info. Companies and lenders use your credit report to calculate your credit score – a number usually between 300 and 850. The higher your core, the lower your interest rate may be for a loan.” Here are a few important pointers to know about soft credit inquiries, and hard credit inquiries:
Soft Credit Inquiries
I. They’re Common: Most companies perform soft credit inquiries anytime they deal with new customers or applications. It’s a convenient way for them to assess a person’s reputation.
II. They Don’t Impact Your Credit Score: Because of how often soft inquiries happen, it isn’t likely that they’ll have a negative impact on a credit score. Some financial institutions even allow customers to access information from soft credit inquiries for free.
III. They Contain Basic Information: One of the reasons why soft credit inquiries aren’t that serious is because they give a surface-level amount of information. They don’t delve into details about income or assets.
Hard Credit Inquiries
I. They Happen When You’re Borrowing Money: Hard credit inquiries differ from soft ones because they trigger thorough inspection. Hard enquiries usually happen for any loan/debt-based transaction. The more you’re borrowing, the likelier it is your screening process will involve a hard inquiry.
II. Denial is a Big Deal: The last thing you want to happen after a hard credit inquiry is denial. This is because failing the inquiry warrants a penalty on your credit score. The only way to fail a hard enquiry is by posing a risk to the lender.
III. They Stay on Your Credit Report for Two Years: Hard inquiries are used as milestones to gauge financial history. Don’t initiate hard credit inquiries unless you’re capable of proving an ability to pay back debt with interest.
If you’re thinking about using credit for the first time, or for a big purchase, it’s important to be aware about the impact this has on your credit report. Merely asking a company to extend a line of credit is reason enough for them to search for ,and record, information about you. This is why it’s important to be very careful about how often you ask for lines of credit. Space out such requests over a period of months if you can. If you like what you just read from our blog, you’ll love the various informative courses, workshops and events listed on our websites and social media. Whether you’re interested in personal development, or overall improvement of your business, give us a call at 1 (888) 823-7757 to find out how The RISE Academy can help you break past your daily struggles and start soaring in success.