The nature in which financial institutions now give out loans is such that it guarantees them that the lender can payback. Over time, they developed a credit rating system to benefit the faithful lenders and in some way, keep the stubborn ones on their feet. Today, practically every organization and individual has a credit score, which plays a very huge role in the amount and kinds of loans they can access. Also, there are numerous factors that may affect your score. This article discusses everything about credit request and how it affects your credit score.
What is a credit request?
A credit request or credit application is simply a request for credit. Furthermore, although it was usually done in written form or orally, it is now completely digitized due to advancement in technology. Credit request is simply an application for a loan by a lender to a borrower. Also, it comes with legal information that contains information relating to the credit terms and conditions and other applicable fees.
Does requesting a credit report hurt your credit?
Contrary to popular belief, filing a credit request actually affects your score indirectly. Furthermore, this happens especially if the lender does a deep or hard inquiry into your credit history. Now, the downside to going through a hard inquiry is that it could destabilize your credit score, causing it to fluctuate slightly. The hard inquiry is always done by pulling your details from the accreted bureau in your region of operation.
However, the good thing about the situation is that it can only cause your score to drop by a few points, that’s if it causes it to drop at all. After this, you can quickly work to get your score back to what it was as long as you understand the rating mechanism.
What affects your credit score?
The factors that affect your credit score are:
- Payment history:
Arguably the most important of the factors, your payment history plays a major role in determining your credit score. In reality, it simply consists of a track record of how you have repaid your debt over the years. Therefore, lenders use it as an indication of how likely you are to repay in the future. They want to be sure that you would return their money, therefore the better your history, the better your credit score.
- Amount owed:
This is estimated as your credit utilization ratio and calculated by dividing your current total revolving credit by your overall total revolving credit limit. Therefore, it estimates how reliant you are on non-cash funds, by showing how much of your available credit you currently use.
- Credit history length:
This basically looks at how long you have held your oldest credit account and the age of your newest. With this, it then estimates the average of all your accounts, and the longer your credit history, the higher your score.
- Credit mix:
Credit mix was put in place to check your diverse portfolio of credit accounts. This is because people with the best credit score often diversify their portfolio. Therefore, credit mix checks all your accounts as a prediction of how well you can manage a wide range of credit products.
- New credit:
This includes your recently opened credit account, as well as the amount of hard inquires that landers made the time you apply. Furthermore, the higher the requests and accounts, the higher the tendency of lenders seeing you as a risk. Ultimately, this reduces your credit score.
Placing a credit request does not affect your score to a varying degree, and if it does, it’s easy to recover. However, repetitive failed credit requests would affect you in the long run. Therefore, before placing a request, analyze your chances of success to see whether or not it is worth it.