Understanding who can check your credit report and when.
The Fair Credit Reporting Act is the federal law that regulates who can check your credit and when. It says that not just anyone can check another credit user’s report. You typically have to authorize credit checks.
Welcome, to the Game of Good Credit. Winning at the Game of Good Credit means taking the right actions to achieve a high score. So, let’s look at how credit inquiries can affect your score.
A credit inquiry happens when you authorize someone to run a credit check. Creditors and lenders run credit checks when you apply for financing. They look at your gameplay history to assess your creditworthiness.
In addition, employers, landlords and even insurance companies can run checks. They review your credit to evaluate risk. Even when you check your credit, it creates an inquiry on your report.
For the most part inquiries have a neutral impact on your credit game – they don’t move you forward or back. You can check your credit as often as you want and it won’t create a negative item or set you back. Employment and insurance related inquiries have a neutral impact, too. And even when a creditor checks your credit to extend a pre-approved offer the effect is neutral. So, while all these inquiries appear on the field, their effects are neutral. That’s why these are referred to as “soft inquiries.”
However, if you apply for a loan or credit card, that creates a “hard inquiry.” One or two hard inquiries within a certain time is fine – the effect on your game is still neutral. But if you have credit applications – one after another – within a six-month period, then it becomes an issue that can set you back from the high score you want.
If you apply for a mortgage or car loan and shop around, each lender runs a credit check when you request a quote. HOWEVER, in this case you don’t get penalized for comparison shopping. All the inquiries get grouped together so the effect is neutral. Just keep in mind that the same thing doesn’t happen with credit cards or other types of loans.
For more information on winning the game of good credit, visit ConsolidatedCredit.org
Credit inquiries that you must authorize
Employment credit checks
Many times when you apply for a job, they ask you to authorize a credit check. This check only reviews the information in your credit report; it does not include your credit score. This is usually just part of the background check to make sure you are who you say you are. However, in certain situations such as applying for a financial position, this check can impact your eligibility.
This credit check creates a soft inquiry.
Checks for loan and credit applications
Almost anytime you apply for a credit card or a loan, the lender requires a credit check. They also run checks when you request a credit limit increase. These create hard inquiries that your credit report that can affect your score.
If the lender doesn’t ask to check your credit, it means loan approval is not a credit-based decision. This happens for things like federal student loans, where lending decisions are based on need.
It also happens for “no credit check” credit cards and loans. These are alternative financing tools designed for people with bad credit. Just be careful. No credit check lending and credit options usually come with strict terms and higher interest rates and finance charges.
If you rent a property like an apartment, they will almost always ask to check your credit; this is typically a hard inquiry. Other rental agreements, such as car rentals, also require a check; ask the rental company if the check that they want to run will create a hard or soft inquiry.
If you sign up for mobile services, cable, Internet or any other contract service, you usually authorize a credit check. Service credit checks may be hard or soft inquiries. Always ask the service provider if the check will create a hard inquiry when they request authorization.
Opening financial accounts
Anytime you open a checking, savings or money market account they will run a credit check to check your credit report; always ask what kind of inquiry it creates on your report. Other financial institutions may also runs checks, such as credit unions and stock brokers.
Checks that don’t require authorization
Pre-approved credit offers
If a credit card or loan company extends a credit offer without an application, they’ve run a credit check first. They check consumers’ credit in bulk to find good candidates for new accounts. They also run checks to extend pre-approved credit limit increases on existing accounts.
These create soft inquiries that don’t affect your credit score.
Credit-based insurance scoring
Insurance companies also run pre-approval credit checks. In fact, insurance companies often give consumers credit-based insurance scores. These are ratings that go into calculating your premiums when you get insurance. Credit score is not the only factor. However, insurance companies say there is a correlation between your credit and the likelihood you will make claims. So, they check your credit. State law prevents these checks in California, Hawaii and Mississippi.