How Checking Your Credit Is Like Eating Jelly Beans

You may have heard that checking your credit can hurt your credit score. And the answer is: It depends.

Think of it kind of like jelly beans — you can eat soft jelly beans all day without thought, but try biting into a hard one and your teeth are going to hurt. The same thing is true for credit checks. You can do “soft” credit checks all day with no harm, but every “hard” credit check is going to hurt your credit score.

What do we mean by a “soft” credit check vs. a “hard” one?

When you apply for a loan, the lender will check your credit report to see how you have used credit in the past. This is called a hard credit check or hard inquiry. A hard credit check can have a minor impact on your total score. According to myfico.com, each hard inquiry will lower your credit score by less than 5 points. On a scale from 300 to 850, that is not a lot, but multiple hard inquires can add up.

Fortunately, not all hard inquiries are treated the same. For example, if you are rate shopping for a car loan or mortgage, as long as all your inquires are done within a 30-day period, you will be happy to learn that this activity will only count as one hard inquiry when you choose your loan. You shouldn’t be penalized for finding the best rate.

However, if you string out your loan search over more than 30 days, or decide you want to apply for multiple credit cards all around the same time, you are going to see these all count as hard inquires. Lenders want to be paid back, and statistically they know that people with six or more hard inquires on their credit report can declare bankruptcy up to eight times more than people with no inquires. Your hard inquiries are removed from your credit report after 24 months.

You can probably get away with eating one or two hard jelly beans — more than that and plan on a possible visit to the dentist. Keep your hard inquires to one or two per year and you will not notice much change in your credit score.

A soft credit check or soft inquiry is totally harmless to your credit score. You will see them listed on your credit report, but they are listed for information purposes only and they do not count against you.

The main reason a soft inquiry will be listed is because a potential lender is checking to see if you would make a good customer for a credit offer. The credit report agencies make money providing this information to lenders. A potential employer may also check your credit — that is also a soft inquiry. Finally, you are welcome to check your credit anytime and, of course, that doesn’t count against your score.

So, a handful of soft inquires on your credit report are like a handful of soft jelly beans. You won’t break a crown — so no need to worry.

Remember, you can check your credit report for free once every 12 months. For details visit annualcreditreport.com.