Credit pull

What Is Credit Pull?

A credit pull, also commonly known as a credit inquiry, refers to a request made by an entity to access an individual's credit report from one of the major credit bureaus. This process falls under the broader category of Consumer Credit, which encompasses the practices and regulations surrounding credit extended to individuals. Credit pulls are a fundamental part of the lending and screening process, allowing lenders and other authorized parties to assess an applicant's creditworthiness. They are broadly categorized into two types: "hard" pulls and "soft" pulls, each with different implications for an individual's credit score.

History and Origin

The practice of pulling credit information traces its roots to the early 20th century, evolving with the advent of standardized credit reporting. Before formalized credit bureaus, local merchants and lenders often shared information informally about customers' payment habits. The mid-20th century saw the growth of regional and national credit reporting agencies, leading to a more systematic collection and dissemination of consumer credit data. A pivotal moment in the regulation of credit pulls and the broader credit reporting industry was the enactment of the Fair Credit Reporting Act (FCRA) in 1970. This federal law was designed to promote the accuracy, fairness, and privacy of information in the files of consumer reporting agencies, establishing guidelines for when and how a credit pull can be conducted. A Summary of Your Rights Under the Fair Credit Reporting Act ²⁰

Key Takeaways

A credit pull is a request to view an individual's credit report.
There are two main types: hard pulls and soft pulls, with differing impacts on credit scores.
Hard pulls typically occur with loan applications and can slightly lower a credit score.
Soft pulls do not affect a credit score and often occur for informational or pre-approval purposes.
The Fair Credit Reporting Act (FCRA) governs the rules for credit pulls and consumer rights related to them.

Interpreting the Credit Pull

Understanding the nature of a credit pull is crucial for consumers managing their financial health. A credit pull provides a snapshot of an individual's credit history, including payment history, amounts owed, length of credit history, new credit, and credit mix. Lenders use this information to determine the likelihood of an applicant repaying debt.

Hard Inquiries (Hard Pulls): These occur when a lender checks your credit report after you have applied for new credit, such as a mortgage, auto loan, or credit card. Multiple hard inquiries in a short period can suggest to lenders that an individual is seeking to take on a significant amount of new debt, potentially increasing perceived risk. This can lead to a slight, temporary decrease in a FICO score or VantageScore. While a single hard pull usually has a minimal impact, excessive hard pulls can be viewed less favorably. Hard inquiries typically remain on a credit report for two years, though their impact on a credit score generally diminishes after the first 12 months.¹⁸, ¹⁹
Soft Inquiries (Soft Pulls): These happen when a person or company checks your credit as part of a background check, or when you check your own credit report or score. Examples include pre-approved credit offers, employment background checks, or identity verification by a financial institution. Soft pulls do not affect your credit score and are often only visible to you on your credit report, not to lenders.¹⁵, ¹⁶, ¹⁷

Hypothetical Example

Consider an individual, Sarah, who is planning to buy a new car. She visits a dealership and fills out an application for an auto loan. The dealership, acting as a potential lender or on behalf of a lender, performs a credit pull to evaluate her creditworthiness. This action results in a "hard inquiry" appearing on Sarah's credit report. The lender reviews her credit history, including past payments, existing debts, and her credit score, to decide on the loan's approval and the applicable interest rate.

Separately, Sarah uses a personal finance app that offers a free credit score monitoring service. When she checks her score through this app, the action initiates a "soft inquiry" on her credit report. This soft inquiry allows her to see her score and monitor her credit report without any negative impact on her credit score, unlike the hard inquiry generated by her car loan application.

Practical Applications

Credit pulls are integral to various financial processes:

Lending Decisions: Financial institutions rely on credit pulls to assess the risk of lending money for mortgages, auto loans, personal loans, and credit cards. The information obtained informs their underwriting process, influencing approval rates and terms.¹⁴
Rental Applications: Landlords often perform credit pulls to gauge a prospective tenant's financial reliability.
Insurance Underwriting: Some insurance companies conduct credit checks to help determine policy premiums, believing there's a correlation between credit history and claims likelihood.
Employment Screening: In certain industries, especially those involving financial responsibilities, employers may perform soft credit pulls as part of a background check, with the applicant's consent.
"Pre-approval" Offers: Companies use soft credit pulls to pre-screen consumers for credit card or loan offers, allowing them to send targeted marketing without impacting the consumer's credit score.
Consumer Monitoring: Individuals can perform a soft credit pull to check their own credit reports and scores, which is an important aspect of financial planning. The Consumer Financial Protection Bureau (CFPB) provides resources on understanding credit inquiries. What's a credit inquiry?¹³

Limitations and Criticisms

While credit pulls are a standard part of the financial ecosystem, they do have limitations and have faced criticism:

Temporary Score Impact: Hard credit pulls, while generally minor, can temporarily lower a credit score, which can be a concern for individuals who need to apply for multiple lines of credit within a short timeframe (e.g., shopping for a mortgage or auto loan). However, credit scoring models often account for "rate shopping" by treating multiple inquiries for the same type of loan within a specific window (e.g., 14 to 45 days) as a single inquiry.¹¹, ¹²
Inaccuracies: Credit reports, and consequently credit pulls, can sometimes contain errors or outdated information. Such inaccuracies can negatively affect an individual's creditworthiness, despite their accurate financial behavior.⁹, ¹⁰ Consumers have rights under the Fair Credit Reporting Act to dispute inaccurate information.
Identity Theft Risk: Unauthorized credit pulls can be a red flag for identity theft. While consumers are protected by consumer protection laws, resolving identity theft can be a lengthy and stressful process. Individuals can place fraud alerts or security freezes on their credit reports to prevent unauthorized access. The Federal Trade Commission (FTC) provides resources for victims of identity theft. IdentityTheft.gov ⁸

Credit Pull vs. Credit Inquiry

The terms "credit pull" and "credit inquiry" are often used interchangeably to describe the act of accessing a credit report. However, "credit inquiry" is the more formal and technical term used by credit bureaus and regulatory bodies, while "credit pull" is a common colloquialism. Functionally, they refer to the same action. The key distinction, as detailed above, lies in classifying the inquiry as either "hard" or "soft," each carrying different implications for an individual's credit score. Understanding this terminology helps consumers navigate interactions with lenders and credit reporting agencies more effectively. The Federal Reserve provides general information on Credit Reports and Scores ⁷, which includes details on how inquiries are logged.

FAQs

1. How long does a hard credit pull stay on my credit report?

A hard credit pull typically remains on your credit report for up to two years. However, its impact on your credit score usually diminishes after about 12 months.⁶

2. Does checking my own credit score count as a hard credit pull?

No, checking your own credit score or report is considered a "soft credit pull" and does not negatively affect your credit score. You can check it as frequently as you wish without concern.⁵

3. Can multiple credit pulls for the same type of loan hurt my score significantly?

When you are shopping for a single type of loan, like a mortgage or auto loan, multiple inquiries made within a specific timeframe (often 14 to 45 days, depending on the scoring model) are usually treated as a single inquiry. This "rate shopping" period helps minimize the negative impact on your score.³, ⁴

4. Who can perform a credit pull?

Only authorized entities with a "permissible purpose" can perform a credit pull. This typically includes lenders considering a loan application, landlords reviewing rental applications, employers conducting background checks (with your consent), and insurance companies. You also have the right to pull your own credit report.

5. What should I do if I see an unauthorized credit pull on my report?

If you notice an unauthorized credit pull, it could be a sign of identity theft. You should dispute the inquiry with the credit bureau and consider placing a fraud alert on your credit report. Resources from the Federal Trade Commission can guide you through this process.¹, ²