Why Multiple Credit Inquiries Can Hurt Your Credit Rating

Your credit rating is the numerical expression of a wide host of factors. It is nearly impossible to understand exactly how any single action you make will affect your credit. However, there are some changes you can anticipate based on steps you take. One foreseeable consequence to a number of simultaneous credit checks is a lower credit score. 

What Is a Credit Check?

A credit check is the process by which a potential creditor requests a full report from one or all of the three credit bureaus. The bureaus, Experian, TransUnion and Equifax, charge the person checking the credit a fee in exchange for the information. Once the lender has paid the fee, the lender will get to look at all of your previous debt history. The credit checks that have been made in the past will not appear in the actual debt history report. However, they will tend to drop the numerical score that is a reflection of all the factors in the report.

How Does It Hurt My Score?

The main reason multiple checks will hurt your score is logical but complicated. If you are applying for a number of loans at once, then a lender has a reason to be scared you may default on the loan they provide you. They cannot see these other hypothetical loans yet on your credit history. In order to provide lenders a warning before the loans appear on your record, the bureaus will drop your credit a few points. The lenders will see this recent drop and understand there are factors they cannot see that may be a warning you will have debt problems in the future. 

What if I Check My Own Credit?

It is wise to monitor and check your own credit. This is the only way to note any misreported debts, which actually occur more than many people think. It is also a good way to know if your lender is accurately providing a quote that is in line with your current credit score. When you check your own credit, you may think your score could drop as a result. In fact, the bureaus will note you are the person checking your credit score. Since the same individual is asking for repeated checks instead of multiple different lenders making inquiries, you will be less likely to experience a drop in credit. A drop of a few points is not anything to be alarmed over.

How Can I Prevent the Problem?

You can prevent having too many credit checks by not allowing a lender to check your credit until you are fairly certain you would like to work with that lender. For example, do not provide your credit information to 5 lenders you are shopping between for loan quotes. Instead, only provide them with estimates of your credit score. This should be enough for the lenders to provide a rough quote. From there, choose only one or two lenders to actually permit credit checks with. This will prevent the possibility of multiple checks all at once at the same time you are looking for a loan.

 


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