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How much does your credit score go down when your credit is checked?

By , CardRatings contributor
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That really depends on how you're managing your current credit and who's checking your report.

According to our contacts at FICO, the company that helped originate the credit scoring process, inquiries on your credit report fall into two broad categories:

  • A "soft pull" happens when a company you're already dealing with wants to pre-qualify you for a new credit card, an credit line increase on an existing account, or another kind of business proposal. Because they're initiating the inquiry without your specific request, soft pulls don't impact your credit score.
  • A "hard pull" happens when you apply for a new credit card, personal line of credit, mortgage or auto loan. Some other financial services can result in hard pulls, like certain insurance policies or student loan requests.

Banks and credit bureaus use a variety of credit-scoring algorithms, so activity on your account could cause a score from one source to stay about the same, while another source reports a significant drop. In general, the following ground rules apply:

  • Credit scores include a grace period for "rate shopping" on major, secured loans. For instance, when you're looking for a home or a new car, consolidate all of your applications and pre-qualification requests into a two-week period.
  • On the other hand, credit cards and other unsecured lines of credit count as separate requests against your credit score. A credit reporting agency doesn't know whether you're replying to a balance transfer offer or attempting to increase your overall credit, so scoring models interpret both actions the same way.

Activity across all of your accounts helps determine the impact of a hard pull on your credit score. If you're making regular monthly minimum payments across all of your open accounts and your credit utilization remains low, a single hard pull won't cause much impact. You might only notice a drop of a point or two, and even that will go away after you open your new account.

You'll feel a more profound drop if you've maxed out any of your cards or if you're running behind -- banks could see applying for a new line of credit as a sign of heightened risk. And multiple hard pulls over the course of a few months could seriously squeeze your score -- banks could assume that you're trying to rack up new debt because of unemployment or illness, even if you're just trying to consolidate your existing balances.

Therefore, time your credit card applications wisely. Remember that instant-approval credit card offers almost always result in hard pulls that can drop your score. Compare credit card deals online, then apply for the best account you can find at a time when a temporary dip in your score won't impact your home loan rate, your insurance premium, or your employment prospects.

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