Why Do Lenders Keep Inviting Me to Check My Credit? (original) (raw)
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Kerri Anne Renzulli
Written by
Contributor, Buy Side from WSJ
Kerri Anne Renzulli is a contributor to Buy Side from WSJ.
Updated June 21, 2024, 8:54 PM EDT
“Often I get invitations from credit cards or lenders to check my credit and it states ‘it won’t impact your credit.’ How is that possible?”
The credit card invitations you are receiving are likely preapproved offers, where the company has checked your credit file to see if you qualify for a new product, deal or credit line increase.
Under the Fair Credit Reporting Act, lenders can review a person’s credit report to determine whether they meet certain criteria. Many regularly do so and then try to entice new and existing customers to take on debt. These invites could also be an attempt by the lender to get you to request a “prescreen of one” or “instant prescreen” to see if you meet their requirements to prequalify for a certain promotion.
Either way, such actions aren’t an application for a new line of credit by you, so the credit bureaus view these credit checks as a “soft credit” inquiry, which isn’t a formal credit application. “The inquiry cannot be seen by lenders or credit scoring models like FICO or VantageScore,” says credit expert John Ulzheimer, formerly of FICO and Equifax. “Only the consumer can see them on their own credit report disclosures. They’re entirely benign.”
Additionally, credit card companies now routinely provide free credit score monitoring services to their cardholders. Your credit card issuer may simply be reminding you to check your FICO or VantageScore credit score through such services, which also won’t affect your score.
Soft vs. hard credit checks
When you apply for a loan, such as a mortgage, student loan or credit card, the lender requests a copy of your credit file from one or more of the three major credit bureaus (Experian, Equifax and TransUnion). They use this information to assess how risky a borrower you are and decide whether to approve your application. These kinds of credit checks are known as “hard inquiries” and can change your credit score.
Soft credit inquiries, on the other hand, happen when someone requests a copy of your credit report to review the information but not for making a loan decision and have no impact on your credit score. Common examples of soft credit checks include viewing your own credit file, employment background checks, setting up utilities at a new address and those preapproved offers from lenders.
Lenders often make prescreened offers in very large batches through an automated process. The resulting soft-credit inquiry is added to your report so you know who has accessed it and for what purpose.
One exception to this is if you receive an automatic credit line increase or accept an offer to raise your credit limit. Both of these credit extensions typically result in a soft credit pull, says Ethan Dornhelm, vice president of scores and predictive analytics at FICO. Demanding a larger credit line increase than the one offered may trigger a hard credit inquiry, however.
Impact on your credit score
If you move forward with a prescreened or preapproved offer you receive, this will likely result in a hard inquiry on your credit report. “The reason is that by completing the acceptance, you are now applying for a new account,” says Rod Griffin, senior director of public education and advocacy for Experian.
While inquiries remain on your credit report for two years, FICO, the most commonly used credit scoring service, only factors in those from the past 12 months when calculating your score. And, on average, a hard credit inquiry results in a five-point or fewer FICO score drop.
“Credit score changes due to a hard inquiry are minimal and will not impact your credit scores for long,” says Griffin. “They are the least important factor in determining your credit score.”
Those new to credit or with relatively few accounts will feel the impact of a new inquiry most, but it will still be modest, says Dornhelm.
Your credit score will take a bigger hit if you apply for several new credit accounts over a short time. That’s because the credit scoring models and lenders view lots of new hard inquiries for different credit cards or loan products as a sign you may be struggling with your current income and have difficulty repaying new debt.
However, if you’re rate shopping for a mortgage, auto or student loan, credit scoring models will treat multiple inquiries as a single one when tabulating your score, provided all applications occur within either a 14-day or 45-day period, depending on the FICO or VantageScore version used.