When installment loan lenders check your FICO score, they are making a hard inquiry on your credit report. The FICO score is a score that falls in the range of 300 – 850. High FICO score allows you to easily get approved for the loan. If you have a low FICO score, you will find yourself having a hard time getting a loan from the lender. The FICO score tells the lender whether you have been diligent in paying bills. Each late payment will reduce your credit score so people who cannot keep up with payment usually have low credit scores.
Nowadays, you can fill in an online loan request form and get an estimate APR rate. This is called a soft inquiry. The lender will proceed to make a hard inquiry if you decide to go ahead and apply for the loan after agreeing to the estimate APR. The lender will send inquiries to the credit bureaus and request for a copy of your credit report. Every hard inquiry that is performed can impact your FICO score.
The FICO score is not affected by inquiries performed within the past 30 days. So, you might not immediately see the effect of the hard inquiries when you are shopping for a loan. In the old version of FICO score formula, the FICO score is calculated based on a 14 days period. The new version of FICO score formula is calculated based on a 45 days period.
You will be labeled as a high-risk borrower if your credit report shows that you are opening a lot of credit accounts in a short time. Statistics show that people who have made more than 6 inquiries at one time are significantly high in risk of not being able to pay their loan and end up in bankruptcy state.
You should do something to improve your credit score if you are planning to get a loan and your FICO score is lower than the ideal level required by the lender. One way to improve your FICO score is to always pay your bill on the deadline and keep the credit card balance at all times. You should only apply for a new loan when you are really in need of the money and not just for an extravagance expenses.
If you responsibly pay your bills, your credit score will steadily increase over time and you will be able to reestablish a good credit rating. Prior to applying for a loan, it is important to check the credit report for any error record that possibly causes you to end up with a low credit score. Requesting for a free credit report from the credit bureau will not affect your FICO score.