FINANCIAL ADVICE | improving your credit
How Much Does Pulling My Credit Really Hurt?
Published February 8, 2019
Key Takeaways
- Your credit report details your credit standing.
- Credit bureaus determine your credit score using private equations.
- The BNI number on a credit report predicts the likelihood of the borrower to declare bankruptcy.
Lenders use your credit score and credit report to determine your ability to repay loans. When lenders access your full credit report, it’s called a "hard pull" or "hard inquiry." Your credit report details your credit standing and is used to determine interest rates and approve or deny loan applications. You must give your permission for this type of inquiry, which is a normal part of the loan application process. Typically, when you hit the "Apply now" button on any loan application or permit your application to be submitted, a hard inquiry is made.
Each hard pull is recorded in your credit report for up to two years. Too many hard pulls can cause your credit score to drop.
Alternatively, a "soft pull" is when a business or lender checks your credit score, normally to generate a pre-approval or pre-qualification for an offer. Most of these types of inquiries are done as part of a solicitation or campaign by a lender to generate business. Typically, these types of inquires only show your score or a range of scores. The full credit report, complete with current and past account information is requested if you respond to the offer and elect to complete a full application. A lender requesting credit score in this way will not negatively impact your credit regardless of how often it occurs.
When does a hard pull take place?
Hard pulls occur when you apply for:
- New loans
- Mortgages
- Car loans
- Personal loans
- Student loans
- New lines of credit and credit cards
- House or apartment leases
How and why do hard pulls impact your credit score?
Just like search engines that use secretive algorithms to deliver search results, credit bureaus determine your credit score using private equations. This is why your credit score can differ from credit bureau to credit bureau. Your credit score summarizes your credit report by grading it using a three-digit credit score, usually from 350 - 850. The higher your score, the better.
Because the information on exactly how credit scores are determined is not available, it’s hard to say exactly how much hard pulls affect your credit. What we do know is that each bureau considers the number of hard pulls in your credit history and can lower your credit score if there are multiple inquiries over an extended period of time.
How can you avoid hard pulls lowering your score?
When several hard pulls take place within 30 days, credit agencies usually assume you are shopping for the best terms and classify those pulls as a single inquiry. That’s why you are often advised to shop around with different lenders for thirty days or less.
What do hard pulls mean to lenders?
From the perspective of lenders, a high number of hard pulls in a short period of time could suggest that a borrower is taking on debt too quickly. According to Equifax, borrowers with six or more hard pulls on their credit, are many times more likely to declare bankruptcy sometime over the next two years.
What else is affected by hard pulls?
The BNI number on a credit report predicts the likelihood of the borrower to declare bankruptcy. We’ve already mentioned that FICO research suggests that borrowers with six or more hard pulls on their credit report are at greater risk of bankruptcy. Like your credit score, your BNI (Bankruptcy Navigator Index) can be negatively impacted by excessive hard pulls.
How much will each hard pull lower your credit score?
Each hard pull can lower a borrower’s credit score from between 5 and 10 points.
That means a hard pull has a relatively minor effect on your overall credit score. However, the more hard pulls are recorded, the more your credit score could fall.
Overall, lenders are primarily concerned with your debt repayment history. If you make debt repayments on time and in full your credit score will be high despite a large number of hard inquiries.