Applying For Multiple Lines of Credit at Once Can Hurt Your Score

A lot of confusion and debate surround the question of whether or not your credit score can be negatively affected by applying for credit, especially when you apply for a lot of credit at once. People are often uninformed or misinformed of the facts about how much your score is affected, why it is affected, how the application process actually affects your score, and for how long the effects last.

To begin to set the record straight let’s start simply: applying for credit typically affects your score in a negative way. However, your credit is not affected by all types of credit checks. There are three ways your credit can be checked: a ‘hard pull’, a ‘soft pull’ and you pulling your own credit report. Only a ‘hard pull’ has any effect on your score.

A ‘soft pull’ is also sometimes referred to as an ‘involuntary pull’ which is more indicative of the nature of this kind of inquiry. This kind of pull is typically used by companies that are attempting to pre-qualifying you for their offer (credit cards, line of credit, etc.) or when they are trying to verify information you have provided them, such as when you open a checking account. Because this kind of credit pull does not affect your score or credit history, companies do not need permission from you to initiate the credit pull.

Pulling your own credit report works similarly to a ‘soft pull.’ There are no negative side effects from pulling your own credit report and score. You are entitled to know what is going on with your score without it being affected by your research.

A ‘hard pull’ is the type of credit pull that can negatively affect your score. For a lender or creditor to pull this kind of information from your report they must first get your authorization to do so. ‘Hard pulls’ occur almost exclusively as the result of you seeking credit of some kind.

A single hard pull will typically only lower your score by about 5 points and the effect of the pull will stay on your record for only around 6 months. One or two pulls on your report are nothing to worry about as long as you are actively seeking credit, although if your score is very close to one of the cutoff points for good, fair, or poor credit you may temporarily find yourself in a lower bracket.

So why do hard pulls exist? It is basically a way to deter you from taking on a lot of credit of different kinds in a short period of time. The multiple decreases in your score will alert lenders to the fact that you are attempting to gain lots of credit and help shut down a potentially risky situation.

This is not to say that you should avoid shopping different rates in order to prevent your score from being lowered. Typically, when your credit is pulled within a few days by similar types of lenders the bureaus’ algorithms will figure out that you are most likely shopping for the best rates and not trying to defraud lenders by obtaining too much credit at one time.

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