Can Utility, Rent, Insurance and Other Non-Lending Inquiries Affect Your FICO® Scores?
FICO® Scores only consider hard credit inquiries in certain circumstances. But sometimes it's unclear if a credit check will lead to a hard or soft inquiry.
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A credit inquiry is a record of when an entity checked your credit report from Equifax, Experian or TransUnion. Sometimes, inquiries posted within the last 12 months can impact your FICO Scores. Generally, this happens when there's an inquiry associated with an application for credit and the lender checks your credit report.
But many types of nontraditional lending organizations may also want to check your credit, including phone carriers, insurance companies, utilities, employers and landlords. Generally, the inquiries from these credit checks don't affect your FICO® Scores — but some of them might.
To understand why, let's take a closer look at how credit inquiries are classified and which inquiries FICO® Scores consider.
Hard inquiries versus soft credit inquiries
Credit inquiries can be thought of as either hard or soft inquiries. Both types of inquiries stay on the credit report for two years, and the distinction is important because soft inquiries are not considered by FICO® Scores. But hard inquiries posted in the last 12 months can affect FICO Scores.
Hard inquiries happen when an entity checks your credit for a lending purpose — when you make a request or apply for new credit. This could happen if you apply for a loan or credit card, or when you ask your credit card company to increase your credit limit.
A soft inquiry is generally the result of a credit check for non-lending purposes, such as when you check your own credit report. Soft inquiries also can happen without your permission, but only if the entity has a permissible purpose to request your credit report. For example, credit card issuers will often prescreen your report and score to determine if they want to offer you a pre-approved offer of credit.
Getting set up to pull credit bureau reports
Not just anybody can pull credit reports. Entities need to be reviewed and approved by the credit bureau before they can start accessing consumer credit reports. If the entity is approved to pull credit reports, the credit bureau assigns the organization a unique subscriber code or member number which typically includes information regarding the entity's “kind of business” (auto lender, credit card issuer, employment agency, etc.) which can be used to help classify as a soft or hard inquiry.
For example, an inquiry for an employment background check would be a soft inquiry while an inquiry set up for a finance company would be a hard inquiry. Many lenders offer multiple types of credit, and they may be assigned multiple subscriber codes or member numbers.
Which inquiries never affect your FICO® Scores?
Some credit checks always result in soft inquiries, including inquiries from when:
- You check your credit report or score.
- A credit bureau uses your credit report to create a list of consumers for a creditor that wants to send preapproved credit offers.
- A utility company checks your credit to determine your security deposit amount.
- An organization checks your credit for employment purposes.
- An insurance company checks your credit report when you apply for or renew a policy.
These soft inquiries will never affect your FICO® Scores. They might not even appear in the credit reports that lenders receive when checking your credit.
Focus on the most important scoring factors
FICO® Scores only consider hard inquiries in certain circumstances and, even then, a single new hard inquiry will generally have a minor effect on your score — often a decrease of less than five points.
New inquiries might be important if you're closely monitoring your credit before applying for an important loan, but using credit accounts, having a low utilization ratio, and making your payments on time will be more important for increasing your FICO® Score. Try to focus on these major scoring factors if you want to improve your FICO Score over time.
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Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.