How Credit Inquiries Really Affect Your Credit Report

By now, most of us know that applying for credit cards left and right will have a negative effect our credit score. But not all credit inquiries are created equal.

Lots of folks today are paranoid that any kind of credit inquiry will hurt their credit - including a potential employer's request to see a credit report, or even a request to view our own credit history. It makes sense that we're skittish, considering how many Americans are overwhelmed by debt and barely able to make ends meet, say Chicago bankruptcy attorneys. But by avoiding our credit report completely, we could be doing more harm than good.

There are two kinds of credit inquiries - "hard" and "soft." Any action that could imply you're taking on new financial responsibilities - like a new credit card, a loan or even a new cell phone - is considered a hard inquiry. Creditors consider these risky, because they can affect your ability to repay debt. Since your credit rating is based on risk, it can take a hit. Soft inquiries, on the other hand, are simply credit checks - and they don't affect your current debt. You know those credit offers you get in the mail? Credit card issuers are regularly looking into your credit history before sending them out.

There's a big reason you shouldn't be afraid of making soft inquiries into your credit. Getting up close and personal with your report is often the only way to catch identity theft and reporting errors - which are surprisingly common and can take a serious toll on your score. At the very least, you should take advantage of the free yearly report you're entitled to thanks to the Fair and Accurate Credit Transactions (FACT) Act. And of course, if you're worried about your credit, it doesn't hurt to know exactly what goes into your score. Viewing your past credit history could illustrate some correctible mistakes - such as more late payments than you realized, or a balance too close to your credit limit.

Keeping an eye on your credit is one thing; fixing it is another. If you know what you need to do but you just can't seem to make it a reality, maybe it's time for a new strategy. Bankruptcy is often the most efficient way to make paying off debt affordable. If debt is running your life, find out how to break free with a complimentary debt analysis courtesy of a Chicago bankruptcy attorney.