Why do hard pulls on your credit make it go down?
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First thing to understand about credit scores is that they are for the banks, and not you.
Hard pulls have no meaning to you, but to the banks they suggest you are looking for more credit. As noted in other comments, that might mean you are planning to take on more credit but have not yet. That leads to a risk that cannot be defined yet, hence a lowered score. Basically the lowered score is temporary and discourages you from continuing to look. Effectively this acts as a mechanism to forcefully control your ability to shop around, or to obtain lots of credit quickly. Both situations the banks dislike.
Overall it is best to think of credit scores with significant skepticism. An ideal borrower (aka someone who does not need to borrow) can have very low credit scores of they have chosen to avoid credit in the past. Additionally, someone drowning in debt can have a very good credit score. Someone who is “good at borrowing” gets a good credit score. That is a major part of why so many people have significant debt these days.
First thing to understand about credit scores is that they are for the banks, and not you.
Hard pulls have no meaning to you, but to the banks they suggest you are looking for more credit. As noted in other comments, that might mean you are planning to take on more credit but have not yet. That leads to a risk that cannot be defined yet, hence a lowered score. Basically the lowered score is temporary and discourages you from continuing to look. Effectively this acts as a mechanism to forcefully control your ability to shop around, or to obtain lots of credit quickly. Both situations the banks dislike.
Overall it is best to think of credit scores with significant skepticism. An ideal borrower (aka someone who does not need to borrow) can have very low credit scores of they have chosen to avoid credit in the past. Additionally, someone drowning in debt can have a very good credit score. Someone who is “good at borrowing” gets a good credit score. That is a major part of why so many people have significant debt these days.
A hard pull strongly correlates with taking on new debt that hasn’t yet shown up on your credit report. New debt means you’re at higher risk of not being able to pay off even more debt.
As an example… I bought a new car on Friday. The dealership ran my credit Thursday in order to see what loans were available to me. I can see the hard pull on my credit report/score already. But it’ll take a few weeks for the loan to get set up, for the account to start getting reported to the credit bureaus (likely not until I make my first payment in May).
So if I were to go apply for a mortgage this week, I am higher risk on account of that new car loan. It’s harder to juggle a new mortgage and a new car loan. But the car loan and its balance don’t yet show up on my credit report. The hard pull is the best means of saying “this customer may have pending new accounts or may also be looking to take on additional debt.”
A hard pull strongly correlates with taking on new debt that hasn’t yet shown up on your credit report. New debt means you’re at higher risk of not being able to pay off even more debt.
As an example… I bought a new car on Friday. The dealership ran my credit Thursday in order to see what loans were available to me. I can see the hard pull on my credit report/score already. But it’ll take a few weeks for the loan to get set up, for the account to start getting reported to the credit bureaus (likely not until I make my first payment in May).
So if I were to go apply for a mortgage this week, I am higher risk on account of that new car loan. It’s harder to juggle a new mortgage and a new car loan. But the car loan and its balance don’t yet show up on my credit report. The hard pull is the best means of saying “this customer may have pending new accounts or may also be looking to take on additional debt.”
A hard pull strongly correlates with taking on new debt that hasn’t yet shown up on your credit report. New debt means you’re at higher risk of not being able to pay off even more debt.
As an example… I bought a new car on Friday. The dealership ran my credit Thursday in order to see what loans were available to me. I can see the hard pull on my credit report/score already. But it’ll take a few weeks for the loan to get set up, for the account to start getting reported to the credit bureaus (likely not until I make my first payment in May).
So if I were to go apply for a mortgage this week, I am higher risk on account of that new car loan. It’s harder to juggle a new mortgage and a new car loan. But the car loan and its balance don’t yet show up on my credit report. The hard pull is the best means of saying “this customer may have pending new accounts or may also be looking to take on additional debt.”
As with most things credit score related it’s based on historical, empirical data.
The behavior being watched for in this case is “credit seeking”. Imagine you are in deep and are spiraling around the drain, and you’re pretty sure you’re going to declare bankruptcy in a few months. If you’re ethically challenged you might get as much unsecured credit as possible from as many lenders as possible, all in the same month so those new accounts don’t show up in the credit checks being done. You might then spend all that available credit knowing you’re writing it off in the near future.
As with most things credit score related it’s based on historical, empirical data.
The behavior being watched for in this case is “credit seeking”. Imagine you are in deep and are spiraling around the drain, and you’re pretty sure you’re going to declare bankruptcy in a few months. If you’re ethically challenged you might get as much unsecured credit as possible from as many lenders as possible, all in the same month so those new accounts don’t show up in the credit checks being done. You might then spend all that available credit knowing you’re writing it off in the near future.
As with most things credit score related it’s based on historical, empirical data.
The behavior being watched for in this case is “credit seeking”. Imagine you are in deep and are spiraling around the drain, and you’re pretty sure you’re going to declare bankruptcy in a few months. If you’re ethically challenged you might get as much unsecured credit as possible from as many lenders as possible, all in the same month so those new accounts don’t show up in the credit checks being done. You might then spend all that available credit knowing you’re writing it off in the near future.
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