How Banks and Businesses Use Your Credit Report
Lenders, businesses, and other entities may look at your credit report and credit score to help decide how financially trustworthy you are. Thus, establishing good credit can help you get approved for loans or a credit cards, earn lower interest rates, get approved for higher lines of credit, and more.
There are two main types of credit inquiries: “hard” and “soft.” Hard inquiries usually occur when you apply for a loan, mortgage, or credit card. But they often come with a price. CFPB points out that hard inquiries can impact your credit score since most scoring algorithms pay attention to how often you apply for credit.
Soft inquiries provide a basic overview of your credit history and won’t impact your credit score, according to CFPB. Prescreened credit card or loan offers typically rely on soft inquiries.
And don’t worry, your credit report isn’t openly accessible to anyone. Thanks to the Fair Credit Reporting Act (FCRA), strict laws dictate that only governments and businesses with legally acceptable reasons can request access.3