Credit Pulls: What Happens When a Company Looks at Your Credit

Introduction

Companies look at your credit for different reasons. Credit checks fall into three common categories:

• An employer's inquiry as part of their recruitment or promotion process.
• A hard inquiry (check or pull) by a company because you have applied for a credit card or a loan.
• A soft inquiry (check or pull) by a company before they send you a pre-approved credit card application or insurance policy application, etc.

It is good to know what does and does not happen when a company looks at your credit. There are many rumors circulating about credit pulls, but they are not all correct, so let us throw some light on the topic.

An Employer's Credit Inquiry

New employers want to know if you really are who you say you are, and can you be trusted. If your employer is thinking of promoting you to a position where you may handle money or have control over company finances, they may want to check you do not have any financial problems that may tempt you in some way.

An employer's check gives them a limited view of your credit report, and they cannot check your report without your knowledge or permission. They see things like payment history on loans and credit cards. They do not see anything that may violate equal employment laws, neither can they see your account numbers, FICO score, etc.

A Hard Credit Inquiry, Check or Pull

Hard checks are made by a company because you have applied for a loan (mortgage, remortgage, line of credit, a new credit card, etc.) You authorize the company to check your credit profile in detail as part of the application.

When a company makes a hard pull, your FICO score (credit score) will drop by a few points. After a couple of months, those lost points will be returned. If you are shopping around for, say, an auto loan you may contact several companies to get the best deal. As long as these companies all check your credit within no more than 45 days, your score will only drop by "one check." So shopping around does not hurt your score as long as you stay within a sensible time frame.

If you apply for, say, several credit cards over a period of a few months, one important thing that happens is future lenders will see all those applications, will wonder why you did not get approved or, if you did, how you are handling the credit you have available and the required repayments for each card.

Another thing that happens is the record of each credit application you make will stay on your file for about two years. The applications only affect your FICO score for one year, but they stay visible for two. It helps give other companies a fuller picture of what you have done. If you do buy something on credit, your payment history on that loan will be more important than the fact that you shopped around with different lenders before you made a choice.

A Soft Credit Inquiry, Check or Pull

Soft inquiries result from a company deciding whether to send you a pre-approved credit card application or insurance policy application for example. You did not ask them to offer anything to you, they decided to check you and thousands of others to see if they should add you to their mailing list. These inquiries are "soft" so do not affect your history or score in any way.

Hard or Soft Inquiries

Some utility companies or cell phone companies may also check your credit profile before "lending" you their electricity or gas or a new phone. These inquiries may be hard or soft depending on the circumstances.

Final Comment

Your credit history is very important in today's world. Your credit score tells companies how good or how poor a risk you may be. Your score is made up of different factors but the two most important are:

• Your payment history with current lenders and credit card issuers.
• Your credit utilization (the less of your available credit you use the more future lenders like it.)

The better your credit history, the lower your risk and the better interest rate you may be entitled to. If you have more questions about what happens when a company makes a credit inquiry, or if you are ready to apply for a mortgage, then please just click here to contact one of our specialists.