Credit scores are extremely important in our society. A good credit score saves you money in the long-run. One of the items that can lower the credit score is an inquiry. Of course, this occurs when a creditor or employer runs a credit check.
There are two types of credit inquiries. There is the soft inquiry. This occurs when you check your own credit file and score. Soft inquiries do not affect your credit score. There are no deductions for points.
What about a hard inquiry? When a company runs a credit check, points will be deducted from the credit score. The amount really depends on how many inquiries have been made and in what time-frame. For instance, consumers can run many inquiries within a 14-day time period and it only counts as 1 inquiry. The credit reporting agencies understand that a person might need to shop rates when buying a house or car. So, the credit reporting agencies allow for that over that 14 day period.
Who can arbitrarily check your credit scores and for what reason? Well the law reads that a company or individual must have a permissible purpose. They have to have a valid business reason for checking your scores. Unfortunately, if you don’t agree with a credit check and want to dispute it to have it removed, the credit reporting agencies typically side with the creditor. Most inquiries have legitimate permissible purposes when it comes to checking credit.
Only in cases of fraud could you have it removed.
Some examples of permissible purpose would be:
- To obtain credit
- Employment purposes – must have consumer permission
- To assess credit risk by a creditor
- Underwriting of insurance
- In connection with a business transaction
- Eligibility for a state license
Here is one that you probably would never think of. If you are renting an automobile with a debit card, the rental car company most often will check your credit to make sure that you are not a credit risk. With a credit card, they know that their risk is covered if you damage the car or keep it an extra day. With a debit card, there is a risk that they will not get their money.
This offers them a way to collect. So, if renting a car, always use a credit card. If you are going to use a debit card, present a credit card in order to prevent them from checking your credit report.
