Your financial future can determine your life’s trajectory, so preparing as early as possible is essential. Apart from your income, your financial life also encompasses credit lines. And to successfully apply for credit, you typically must go through credit pulls.
Conducted by lenders, credit pulls can affect your credit score. You must keep your credit record clean and know which credit reporting agency banks and credit card providers pull a hard inquiry on your credit report, as this can help you prepare better.
If it sounds intimidating, don’t worry. We've looked into banks and credit card provider sites, and other reputable finance source sites during our research.
From there, we’ve discovered the top reason you should care about credit pulls, so don’t miss out and accidentally damage your credit. Here’s everything you need to know:
What should you know about credit pulls?
Besides your hard-earned income, your credit score remains the most critical asset in your financial life. It serves as proof of your capability to handle money.
How? It helps lenders know whether or not you’re worthy of enjoying perks such as auto loans, mortgages, credit cards, and other credit lines you may need down the line. Your credit score also plays an integral role in your everyday life, including renting an apartment or opening utility accounts.
In other words, you must ensure that your credit score remains in the best possible shape. Taking care of these numbers entails a deeper understanding of what can affect them negatively and what you can do to protect them.
One of the biggest includes is a credit inquiry, also known as a credit pull or credit check.
Credit pulls entail lenders and other credit institutions requesting more information about you. In this process, they contact the three major credit reporting bureaus in the country: Equifax, Experian, and TransUnion.
Credit pulls fall into two major categories, which are soft and hard credit pulls. Soft credit pulls have no effect on your credit score. Hard pulls, on the other hand, may cause the numbers to drop.
What is a soft inquiry?
Soft inquiries or pulls often happen as part of background checks. It usually occurs without your permission, so a creditor may check your credit score to see if you qualify for the loan you wish to apply for or existing offers they want to put on the table.
It’s also a common practice for many employers to run soft pulls before hiring.
Soft pulls may appear on your credit report, but they won’t affect your score. Moreover, only you can view them when you check your own report—other lenders won’t see them.
What is a hard inquiry?
Hard inquiries, also known as hard pulls, happen when lenders or creditors from financial institutions request a copy of your credit score to assess your financial standing.
This helps them understand whether or not you’re reliable or trustworthy for a loan, credit card, or mortgage. Thankfully, these lenders can’t just automatically do hard pulls on your credit reports—you need to authorize them.
This is good news because hard inquiries affect your scores negatively. Depending on your credit standing, the effect can be damaging or negligible.
How do credit pulls affect your credit score?
Important Reminder: A credit inquiry's effect depends on the inquiry type your lender initiates. As mentioned, soft pulls can't affect your credit scores, but hard pulls can.
Hard inquiries usually stay on your credit score for about two years, which is why it’s paramount that you think about the loans you wish to apply for. We recommend that you never apply for a handful of credit lines at once—even if you’re planning to do so in a span of months.
Because hard pulls can inherently affect your credit score, multiple hard inquiries will leave a lasting impact on your credit score. This will also cause creditors to see you as a high-risk customer—short on cash and capable of stacking debt. That’s not a very good image!
So, how many hard credit pulls are too many? Typically, lenders see six or more recent hard inquiries as a red flag. It’s best to avoid applying for new credit too frequently.
When it comes to soft pulls, on the other hand, you don’t have to worry about any negative impacts on your credit score. As previously mentioned, you may see soft inquiry records on your report—but they’ll only be visible to you.
Although hard pulls can stay on your reports for about two years, the effect isn’t permanent. As your credit history diversifies, the hard inquiry won’t affect your chances much.
Understanding how hard inquiry can affect your credit score
Although hard pulls can stay on your credit report for two years, lenders usually only look at your records in the past year. All hard inquiries can directly affect your credit score, however.
How does this happen? When you apply for a credit card, for example, you’ll find that your score drops by two to ten points. Over time, the impact decreases. If you pair this with good credit practices, recovering will be even easier.
But to avoid the credit score pitfall, it’s best to refrain from applying for multiple credits at once—especially for bigger products like home mortgages. In doing so, you keep your credit score as high as possible, ready for the purchase you actually need.
Which credit bureaus do lenders check?
When you apply for any credit line, you allow the lender access to your credit reports from either Experian, TransUnion, or Equifax.
The credit bureau lenders choose can significantly impact your credit score because if multiple lenders do hard pulls from the same credit reporting agency, they may lower your score significantly.
Unfortunately, many financial institutions don’t publicly disclose which credit bureau they prefer. However, there are online resources you can use to read through consumer feedback. You’ll likely see a pattern and pinpoint which credit bureaus your lender prefers.
CreditBoards.com, for instance, allows you access to a database where you can find which credit bureau a bank or lender will likely use for your application. You may also see what credit score they require.
However, remember that this will only be helpful AFTER you’ve applied for a credit line. It’s just a helpful tool that can help you prepare better for the next try if you get denied. Here’s how to use the platform:
Step 1: Visit CreditBoards.com.
Step 2: Tap the CreditPulls option located on the “More” menu bar beside the “Forums” button.
Step 3: You’ll need to input exactly what you need, so select the search criteria and type in your resident state, credit reporting agency, application date, and whether you have been approved or denied.
Step 4: After checking if the information is complete, click “Update.”
Step 5: After that, you’ll see a list of loan issuers, where you’ll also see what credit bureaus lenders usually prefer.
From our research, however, we’ve figured out that these specific banks prefer the following credit reporting agencies:
- Bank of America prefers Experian
- Capital One prefers TransUnion
- American Express prefers Experian
- Barclaycard prefers TransUnion
Some banks also reach out to Equifax, but rarely—and only as an alternative option.
Why does it matter which credit bureau will be pulled?
It matters because lenders rely heavily on credit reporting agencies to get to know your potential spending, saving, and payment habits. Your credit report serves as a baseline for approval or denial.
You would want lenders to pull from a credit bureau with the most accurate records, as one or more credit bureaus may contain errors that can negatively affect your chances.
If you can find out which credit agency a specific lender chooses, you can apply to that institution and increase your chances of getting approved while mitigating the effects of hard credit inquiries.
Conclusion
Living a financially secure life should be the goal, but this success relies heavily on your credit report. It’s essential to stay informed about what affects your score, how to protect it, and, above all, find ways to boost it.
In the case of credit pulls, taking on a more proactive approach is necessary. Because it can be challenging to know which credit bureau will be used when you apply for a loan, staying on top of your credit report is always a good idea.
That said, always review your credit reports across all three credit reporting bureaus! Any errors, inaccuracies, and outdated data should be removed immediately. In doing so, you effectively up your chances for approval—no matter which credit reporting agency your lender chooses!
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
