How to Avoid a "Hard Pull" of Your Credit Report and Still Borrow Money
Establishing a solid credit profile is something of an art. A plethora of factors go into determining a borrower's credit score. And savvy consumers know there are ways to manipulate those factors.
One such factor is the frequency of hard inquiries, or "pulls," on your credit report.
Hard pulls are common when you apply for a loan or line of credit. Since they indicate that you are trying to borrow money, multiple hard pulls in a short period of time may indicate that you're desperate for a loan.
Thus, too many hard pulls result in lower credit scores.
That's not a big problem for most folks for the simple reason that most of us don't apply for multiple loans at the same time. However, many of us know that increasing the limits on our credit cards is a simple way to boost our credit score before we seek a larger loan.
The trick is to get that increase without generating a hard pull.
How to get an increase
Before the recession, card issuers made it relatively simple to increase credit lines. Just log into your online account and there was an option for an instant increase to your credit limit--oftentimes, it didn't cause a hard pull.
But in today's more cautious banking environment, requesting a credit-line increase online may generate a hard pull on your credit reports.
So pick up the phone.
When you get customer service on the line, tell them that you are looking for a credit line increase, but stipulate that the request is contingent on there not being a hard pull on your credit report. You have the option to decline an account review if there will be a hard pull.
Or try a secured credit card
For those who have poor or no credit histories, hard pulls can have a big effect on credit profiles. There's just not enough "good" stuff in the report to outweigh the hard pull. And folks with limited credit history are also more likely to be declined for most loans and lines of credit.
Secured credit cards are one way to help rebuild or establish credit because some do not check your credit reports and, therefore, do not result in hard pulls. Instead, secured credit cards require card members to deposit cash in a bank account to hold as collateral. The credit limit is equivalent to the amount of the deposits.
But shop around and read the fine print. Not all secured cards can be used to improve your credit score. Get the wrong card and you won't do a thing to boost your score.
In addition, be aware that many secured credit cards carry annual fees--to account for the increased risk in lending to borrowers with bad or little credit backgrounds.
Consider an alternative credit report
In the past few years, more companies have created alternative ways to gauge consumer credit risk without resorting to traditional credit reporting methods. They use other metrics--such as rental payments, monthly bills, and public records--to determine whether you are worthy of loans.
CoreLogic, eCredable, Payment Reporting Build Credit (PRBC), and Experian's RentBureau are examples of new initiatives to prove creditworthiness. None of them delve into consumers' traditional credit reports.
Under the Fair Credit Reporting Act, lenders are required to consider data that can be used to judge an applicant's credit risk. Lenders are still able to deny a loan application if a person does not meet their lending criteria. But it doesn't hurt to try.
Hard pulls not entirely bad
In the worst-case scenario, you may have to accept a hard pull to get a loan or credit-line increase. But don't panic.
The credit score drop from the pull is temporary. If you qualify for the loan, the boost in your available credit can help improve your score above and beyond what it was before the hard pull.
Simon Zhen is a columnist and a staff writer for MyBankTracker.com. His columns cover all aspects of personal finance--with a particular emphasis on bank rates, products, and services.
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