WEEK 3: CREDIT MAINTENANCE
New to the Live Richer Challenge: Credit Edition? Learn more about it HERE.
Need to catch up? Click on yesterday's task and then come back.
Day 15: Hard vs. Soft Inquiry
Today’s Easy Financial Task: Learn the difference between a soft and hard credit inquiry
How to rock this task:
- Pull out your credit report
- Review the items in the credit inquiry section of your report
Welcome to the last week of the Credit Challenge!
We’re in the home stretch, Dream Catcher!
At the beginning of this Challenge, you learned the nuances of credit and what components make up your credit score.
The second week of the Challenge we focused on implementing some heavy-hitting strategies to clean up your credit report and improve your credit score.
The last piece of the puzzle is to create a game plan for:
- Keeping your credit report clean
- Maintaining credit score growth
- Protecting your credit from others
As a recap, the amount and type of credit inquiries you have on your report make up 10% of your credit score.
When you apply for a credit card, loan, rental, utilities, phone plan, and even occasionally during an employment background check, a company asks to perform a credit inquiry on you. The purpose is to check your history to make sure you’re a creditworthy candidate.
You may wonder why an employer would need to review your credit report. Some companies use credit history to judge character and financial habits before hiring.
There are two types of credit inquiries: soft and hard credit inquiries.
Soft Credit Inquiry (also known as a soft pull): A soft credit inquiry is a routine check on your credit history that can happen without your permission. A soft credit inquiry does not impact your credit score.
An example of a soft inquiry is when lenders or credit card companies pre-qualify you for products before sending offers through the mail. Later this week, I’ll teach you how to stop companies from pre-screening you for these credit cards and loans.
A soft pull also happens when you check your own credit history and when an employer does a background check (unless they tell you otherwise).
Hard Credit Inquiry (also known as a hard pull): Hard inquiries are the ones that can affect your score but can only happen with your permission. Hard credit inquiries are used to make a final decision on whether or not to offer you a service, loan, or line of credit.
A bank, credit union, or company usually asks you to authorize a hard credit inquiry during the application process. If you request a credit line increase or amendment to an existing contract, a hard pull may also be required to approve the request.
A credit inquiry usually causes you to lose five or fewer points. However, if you have a short credit history or very few accounts on your report, a credit inquiry may be more impactful.
Here are three tips to follow to manage inquiries on your credit report:
1.) Always ask what type of inquiry that an application will trigger.
Before you turn in a new application or request a change to one of your current accounts, double-check the type of inquiry it will cause.
2.) Shop for loans with a plan.
You should always compare rates with multiple lenders to get the best deal before taking out a new auto loan, student loan, mortgage, or personal loan.
The good news is, if you are shopping for a car or home loan, several lenders can pull your credit within a 30 to 45-day window while you shop around for the best interest rate and terms. The multiple inquiries will have the impact of just one hard inquiry.
Use this to your advantage. Make a list of lenders that you want to compare prices with first. Then, submit your applications back-to-back to be strategic with your hard credit inquiries.
3.) Don’t apply for any and every credit card.
Multiple hard inquiries for credit cards are not viewed the same as shopping for a loan. If you apply for many credit cards, it’s looked at as a sign you may be experiencing some money trouble.
Don’t get enticed by the credit card sign up discounts at the retail counter either. Applying for each credit card will require a hard pull on your report.
Before we close today’s task, I want you to circle back to your credit report to review the hard credit inquiries on it.
Ask yourself these questions:
- What applications or activities triggered a hard pull on my credit?
- Do I apply for accounts that I don’t need?
- How can I avoid/limit inquiries in the future?
That brings us to the end of today’s task Dream Catcher!
Let your people on Social Media know what you’re doing:
Today, I learned what a (credit) soft pull & hard pull are. Day 15: #Liverichercredit
If you have any questions, hit the comments below.
Don’t forget to keep tabs on your accountability partner(s)! Teamwork makes the dream work!
Tiffany “The Budgetnista” Aliche
P.S. Don’t forget to get your free Live Richer Challenge: Credit Edition Starter Kit. Get it here.P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.
You can also reach out to me here:
My Lisa Rule: I have 4 sisters and Lisa is the baby (well she’s not a baby anymore). Of all of my sisters, I’m the most protective over her. Before I share any product or service with you, it must pass my Lisa Rule.
What’s the Lisa Rule? If I would not advise Lisa to use a product or service, I won’t advise you to either. YOU are my Lisa's. I feel protective over you and your financial journey.
The products and services I recommend pass my Lisa Rule. Yes, I may be an affiliate or partner and earn a commission off of referrals or income, but I would not recommend a product or service that I didn’t believe was helpful and useful.
Share the wealth!