Ask the Bitches: What’s the Difference Between Credit Checks and Credit Monitoring?

The world of personal finance is full of terms designed to confuse and waylay the innocent. Yet you are a beautiful and mysterious adventurer on the exciting journey of life! You do not have time to parse the different meanings of seemingly synonymous financial terms like “credit checks” and “credit monitoring.”

Fortunately, we’re a coupla’ nerds with nothing better to do.

Recently, an anonymous follower (we’ll call them “Pudding Cup” because I assume that, like pudding, they are both sweet and smooth) asked:

Dear Piggy and Kitty, I have a question. I just got an email from the auditing office of my state saying that the unemployment filing host “Accellion” was hacked and they don’t think anything happened, but are offering a free year of credit monitoring. I have no idea what that would do or how I would use it to make sure nothing bad happened? Also doesn’t monitoring your credit (somehow?) make it worse? Would this be helpful or not really?

In short, Pudding Cup has mixed up two distinctly different concepts to do with credit: credit monitoring and credit checks. I’ll detangle the two below.

Wait… what’s credit again?

If you haven’t yet read our complete guide to understanding credit, do so now. Go on. We’ll wait.

Too long? Didn’t read? Shame on you. Here are the highlights:

• Credit is money that you borrow to buy goods and services. It comes in many forms, including revolving credit, credit cards, and installment credit.
• Your credit report is a summary of your financial reliability. It’s a biography of your money, your history of paying off debts and other bills.
• Your credit score is the numerical value assigned to you based on your credit report. It tells lenders, landlords, and the government how risky you are as a borrower. 
• The credit reporting bureaus—Equifax, Experian, and TransUnion—keep track of everyone’s credit reports and credit scores. You don’t sign up for them or opt in. They start tracking you as soon as you use credit for the first time.

What everyone gets wrong about checking your credit

There’s a common misconception that any sort of observation of your credit report will tank your credit score. Like Eurydice, your credit score will get whisked down to Hades if you so much as glance over your shoulder at it.

Banish this misconception from your thoughts. You can check your credit score as often as you like and for free. Services like Credit Karma and the apps of some credit cards even make it easy by sending you updates when your score changes. Checking your own score this way will not hurt it at all.

It’s when someone else checks your credit that things get complicated.

What’s credit monitoring?

“Credit monitoring” is when a watchdog company keeps an eye on your credit report for you. Their job is to notify you of any suspicious activity.

What kind of suspicious activity? Anything out of the ordinary that might indicate theft or unauthorized use of your identity or money.

As with Pudding Cup’s situation, let’s say someone has stolen your identity through hacking your state’s unemployment office. The computer literate thief could use that information to apply for a loan, credit card, or other line of credit. That’s when the credit monitoring service will swoop in to save the day (read: narc on the asshole robbing you). They’ll reach out and tell you directly if your social security number or other identifying information is used to apply for a loan. That way you can be like “Hey, that wasn’t me! I didn’t try to get a loan!” and shut that whole thing down.

Having credit monitoring does not affect your credit score in any way. It certainly won’t hurt your credit score to have it. And in the event of attempted identity theft, it could actually prevent your score from taking a nosedive due to illegal activity.

Essentially, credit monitoring is a way of protecting yourself from identity theft that could lead to massive headaches and even more… massiver… financial losses. I personally have credit monitoring through LifeLock. It’s something I’m too stingy and lazy to buy myself. But my father is paranoid (and with good reason—he’s had his banking info stolen more than once) and signed my husband and I up for it. 

Why you might need it

Remember back when Equifax had that big data breach where hundreds of thousands of people had their information exposed to identity theft? We do. One of the ways the credit reporting bureau tried to make it up to their customers (who are, again, all of us) was to offer free credit monitoring.

Maybe I’m edging close to victim-blaming (if a giant corporate entity can count as a victim), but with the Equifax case, they left themselves vulnerable to attack. They had a responsibility to fucking fix it. Especially because they had, like, two jobs: 1) keep an eye on everyone’s credit usage and 2) keep that information top-fucking-secret.

Their fix was to offer free credit monitoring to anyone affected by the breach. A reasonable, action-based solution. We love to see it.

In Pudding Cup’s case, I think it’s a great idea to accept the year of free credit monitoring from the state’s unemployment filing host. They put you at risk! The least they can do is help you protect yourself at no cost!

Some examples of credit monitoring services are LifeLock, Privacy Guard, Credit Karma, and Identity Force. None of whom would deign to pay us to recommend them to you, so do your own research if you want credit monitoring.

More Bitchy wisdom on credit and credit cards:

• Dafuq Is Credit and How Do You Bend It to Your Will? 
• The Equifax Data Breach and Identity Theft: Dafuq Just Happened?
• Let’s End This Damaging Misconception About Credit Cards 
• 63% of Millennials Are Making a Big Mistake With Credit Cards

What are credit checks?

A credit check is when an outside entity asks the credit reporting bureaus for a lil’ peek at your credit score and report. It’s also known as a “credit pull” or “credit inquiry.”

This is when a lender (like say, if you’re buying a house, car, or student loans) pulls your credit report from the credit reporting bureau to make sure you have decent credit. They want to reassure themselves that you’re not just gonna take the money and run.

There are essentially two kinds of credit checks, neither of which has anything to do with credit monitoring.

Hard credit checks

This is what Pudding Cup feared: the dreaded hard credit check, known for ruthlessly chewing up and spitting out credit scores.

This is when a lender (say you’re trying to finance a car or get a mortgage or rent an apartment) does a deep dive into your credit report with the credit reporting bureaus. They’re looking in every nook and cranny.

When a hard credit check is performed, it can negatively affect your credit. Not a lot! Usually it’s about a five-point drop. Definitely enough to hurt if you’re trying to build that score up to meet your future goals.

If you get too many hard checks on your credit in a small amount of time (defined as 14-45 days), it’ll negatively affect your credit by an exponential amount. It’ll also make prospective lenders a little jumpy. And when they’re jumpy, they’re less likely to give you money. The logic there is that you are being shady and irresponsible by applying for a lot of credit all at once.

That said, lenders understand you’re likely to shop around for the right loan! So if you apply for multiple kinds of the same credit (e.g., a mortgage) all at once, the credit reporting bureaus will roll that into one hard credit check, instead of multiple. How magnanimous.

The rationale (with which I strongly disagree) is that if someone is getting a credit check, it means they’re… about to be in debt???? And therefore a more risky person to lend to??? It’s backwards logic. But anyway yes, Pudding Cup, a hard credit check can indeed make your credit worse. 

Soft credit checks

Soft credit checks, on the other hand, are what it says on the box: the kinder, gentler credit check, known for leaving the room tidier and smelling better when it leaves.

A soft credit check is just a review to determine your basic creditworthiness. It’s what happens when there’s no big decision to be made about whether to lend you money. A landlord might perform a soft check just to get confirmation that you’ll pay your rent on time. Some employers do soft checks during the hiring process (though I strongly disagree with this practice). Insurance providers also do soft checks, and every time you peek at your own credit report, it counts as a soft check.

The major difference between hard and soft credit checks (besides one being a bull in a china shop and the other being more of a Marie Kondo in a closet) is that your permission is needed to perform a hard check. Yet while your permission isn’t necessary to perform a soft check on your credit, the federal Fair Credit Reporting Act makes it so only those with a “valid need” can peep your report.

What do?

“Would you like free credit monitoring?”

Answer: “Yes please!”

“Would you like to buy credit monitoring?”

Answer: Depends on your risk tolerance! If your information has been exposed to possible identity theft, you should probably get that credit monitoring. If you’re feeling pretty safe and secure, you might be safe foregoing credit monitoring for now.

“Can we do a credit check?”

Answer: “Is this a hard credit check or a soft credit check?”

“Can we do a soft credit check?”

If you have decent credit: “Go for it. I ain’t got nothin’ to hide and this won’t hurt my score at all!”

If you have shitty credit: “I’d rather you didn’t if it’s not entirely necessary.”

“Can we do a hard credit check?”

If you have decent credit and you’re prepared to take a five-point hit to your score:

If you have bad credit and you’re trying really hard to build it up and that five-point dip would be painful: “Actually, I think I’ll pass. Thanks anyway.”

If you have bad credit but you really need that loan so you’re willing to take the risk: “Sure. And do you like cookies? Because hey look at this! I just baked these bad boys and they’re all ooey-gooey and fresh from the oven!”

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