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I Have a Lot of Debt: Can Hard Credit Checks Impact My Credit Score?

Debt has become the standard way for people to manage their financial life. Instead of cash, families and individuals are turning to credit more and more. It seems an easier form of payment, granting access to things when we need or want them.

But, the amount of debt is a major problem many Americans face. According to a 2022 financial report by CNBC, the average US household with debt owes an average of $155,622. That is up 6.2% from over a year ago. The debt includes credit cards, mortgages, home equity, lines of credit, auto loans, student loans, and other household obligations. This makes one wonder whether using debt is a wise path in the first place.

Regardless of where you fall on that issue, existing debt makes it harder to pass credit checks and get any additional financial applications approved.  Banks are less willing to extend additional lines of credit to someone already swimming in debt. So, you need to understand what you are facing if you are wanting additional financing for something. 

In this article, we’ll be diving into credit checks and how they impact your credit score. We’ll also see if there are any work-arounds to help you get the financial assistance you need.

What are Hard Credit Checks?

Credit checks or credit searches can be categorized into soft and hard checks. Both serve the same purpose for companies to understand your financial behavior. This is done through viewing your credit report and checking past payments.

Soft credit checks don’t affect your credit score. They are mainly performed as background checks by potential employers. Card issuers might also use these to check if you’re eligible for any rewards.

Upgraded Points states that hard credit checks on the other hand will affect your credit score negatively. Hard checks are usually done by companies that have to make a decision on whether to approve a financial request you make. Think lenders, card issuers, or landlords. Rent, mortgage, auto, credit, student or personal loans often require a hard check. This is why hard checks also often require your permission to push through.

How can Hard Checks Affect my Credit Score?

Customers should be wary of a hard credit check because they affect your score negatively. Forbes Advisor explains that your score can be reduced by up to five points, and each check recorded on your report will last up to two years. Getting denied a credit card doesn’t affect your score, but the hard inquiry will.

Moreover, having too many credit checks over a short period of time can lead to a bigger toll on your credit score.

If you have existing debt, there’s a big chance that your credit score won’t look too good. This could impact your chances of getting your financial request approved. Moreover, we highlight in our article ‘Does My Credit Score Affect My Spouse? that a bad score can also impact your partner’s finances. This applies to applying for a joint credit card, buying a house, or even renting a residence.

Related Content: Is Your Credit Score Simply a Measure of How Much You Love Debt? 

How do I Deal with Hard Checks and Bad Credit?

Although the best course of action is to make sure that your debts are paid off and you’re doing all you can to raise your credit score before a hard check, there are a few work-arounds.

You could look around for a personal loan lender that accepts applicants with credit scores lower than 580. Also, there are some lending companies that don’t require hard checks for approval.

You could also opt for a secured loan. A secured loan is essentially a loan backed by assets you already own such as a home or car as collateral.

For emergency purchases, there are also buy now, pay later services, although this is a risky option. USA Today warns users to be wary of additional debt. Instead, be responsible in paying it off so as not to incur additional bad credit. You might also face higher interest rates, because lenders will see you as a “riskier” borrower.

Related Content: How to Get Out of Debt and Win in Five Simple Steps

Managing Your Credit Score Wisely

If you choose using debt as your path in life, it’s best to not let your credit score drop too low by responsibly paying off the debts you currently have. This will help you become a more responsible spender and more financially stable down the line.

Of course the best path to dealing with debt is to not have any in the first place.

Leave a Comment or Answer a Question Below: How do you manage your financial life – debt or no debt? Why does that work for you? Have you ever had your credit score damaged? What If so, how did that happen? What advice would you give someone for getting out of debt? 

Image source: Pexels.com

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