Dear Experian,
I did my home loan through a mortgage company. Why is that mortgage company checking my credit every month and affecting my credit score?
- WAI
Dear WAI,
When you do business with a company, such as a mortgage lender, it can check your credit history periodically as part of its account review process. This process results in what's called a credit inquiry being added to your credit report. While credit inquiries can have an impact on your credit scores, the type of inquiry caused by an existing lender performing an account review—known as a soft inquiry—will not.
What's the Difference Between a Hard Inquiry and a Soft Inquiry?
There are two types of inquiries, separated into two different sections on your Experian credit report. One section lists hard inquiries. These hard inquiries can be seen by lenders and others viewing your credit report, and they may be factored into your credit scores. They are typically the result of an application for credit or service accounts.
The other section of inquiries is listed as soft inquiries. Because these inquiries are not necessarily the result of a transaction you initiated, they are not factored into your credit scores. They are often the result of a business requesting your information in order to send you a preapproved offer of credit, so you may not recognize each name you see listed there.
Soft inquiries may also be a record of an account review by a lender or company that you already do business with, such as your credit card company, auto loan company or in this case, your mortgage lender.
You'll see a record of each time you've requested your own Experian credit report in this section as well.
How Much Do Hard Inquiries Impact Me?
Because a new hard inquiry indicates to lenders and credit scoring models that you may have opened a new account or taken on new debt that does not yet appear on your report, it can cause a temporary dip in your scores, but any impact is usually minimal. Once the account appears on your credit report and lenders can see that you are making payments on time and managing it well, your scores will typically rebound.
The credit score impact of an individual hard inquiry may be minimal, but the impact can compound as more are added to your credit report. That's why many inquiries in a short period of time can cause a temporary decline in your scores. However, many of the newer credit scoring models now count multiple inquiries made for the same type of credit within a certain period as just one inquiry, which can reduce score impact. Inquiries for credit cards aren't treated in the same way, however.
While inquiries remain in your credit report for two years, any impact they have on credit scores decreases rapidly, usually within two or three months. FICO® Scores☉ omit inquiries entirely after 12 months.
The biggest factors in your credit score are your payment history, which shows lenders whether you've paid your bills on time, and your credit utilization rate. Your utilization rate calculates the percentage of available credit you are using by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits.
Order Your Free Score to See What Factors May Be Hurting You
To find out what is impacting your credit score the most, you can order your free credit score from Experian. When you get your score, it will list the top factors that are currently impacting you negatively. By focusing on improving those factors, you can begin improving your scores.
Thanks for asking.
Jennifer White, Consumer Education Specialist