Your credit score is one of the most important numbers you will ever have in your life. It is like your old GPA (grade point average) from school, except for your money. Banks, credit card companies, lenders, employers, and landlords can use your credit history to decide if you get a new account, loan, apartment, or even a job. At the same time, it can save you tens of thousands of dollars on a mortgage loan. Here is everything you need to build an excellent credit score, and how you can understand and use it.[Read more…] about Credit Scores: The Complete Beginner Guide
A Narrow Bridge Finance reader recently wrote me with a question that made it clear he is in a very tough spot. His Dad opened up a credit card under his name. As it is his Dad, and not a stranger, this is not your typical identity theft situation. Here is what was going on, and how to deal with identity theft by your mother, father, or another family member.
Have you ever wondered how bankers decide whether or not to approve a loan? Have you ever been rejected for a loan? Are you interested in a new loan sometime in the near future? If so, you should probably know a bit about how bankers underwrite loans to decide whether to approve or deny prospective customers.
Credit repair companies advertise that they can turn your credit around quickly and with little work on your part. While some credit repair agencies are reputable, many falsely advertise and mislead consumers into thinking they can fix it all for a fee. Before you hire a credit repair company, here are some reasons you shouldn't and tips to take care of your credit on your own.
I have written about LastPass a few times before. LastPass is a password protection tool that you can use to secure your online life. They recently added a new free credit monitor feature that you can use to make sure you know about any unwanted surprises on your credit report.
On Saturday night, I was out at a bar with some friends when an incredibly cool bar discussion topic came up. We started talking about credit scores and credit reporting. (Now you know my friends are as cool as I am.)
Even friends who understand credit were having trouble with one topic, and it is very important for your credit score. I clarified with them on Saturday, and I will clarify with all of you today.
A hard hit takes place when your bank, credit issuer, future employer, or other company pulls your full credit report for a review. If you apply for a new loan, the bank will most likely want to review your full credit history in their underwriting process. That results in a hard hit on your credit score.
Every hard hit will be visible on your credit report. If you go apply for a car loan at five different banks over a few months if you keep getting rejected (a bad idea), five hard hits will be visible on your credit report. Simply put, the people who run hard hits on your report will see all previous hard hits for the last two years. Hard hits do not happen on their own. You have to explicitly give permission for a bank to run a hard hit on your credit report.
A hard hit does impact your credit score. It is not a major factor in your score compared to payment history and credit balance used, but it does have an impact. If you have more than two hard hits per year, or a whole lot of recent hits, it is a signal that you are out there trying to get big credit lines. That lowers your score and desirability to lenders.
One thing to note, however, is that if you do a couple of loan application for the same thing in a couple of days, like two car loan applications or two mortgage applications right at the same time, they may be bundled together and only considered as one hit, but that doesn't always happen.
If you are pre-approved for a credit card or insurance policy, that company ran a soft hit on your credit. A soft hit gives a limited view of your credit history. Companies do not need your permission to run a soft hit.
The nice thing about a soft hit: you are the only one who can see them.
Because you have no little control over soft hits, lenders do not get access to see who is checking you out. Banks that you have a credit card with most likely run a soft hit on your report monthly, quarterly, semi-annually, or annually to ensure your credit score has not had a dramatic change.
You can limit soft hits to your credit report. Visit OptOutPrescreen to get your name off of the lists. It is free from the credit reporting agencies. You should not pay for this type of service. If you are in the market for a new credit card, these offers are nice to receive. If you are concerned with your identity more than offers, I suggest opting out. (I have opted out)
A Soft Hit vs. a Hard Hit on Credit
A hard hit shows up on your credit report and can hurt your score. A soft hit is invisible to lenders and has no impact on your score.
Any questions? Leave them in the comments below.