Credit Inquiries
A credit inquiry is essentially a notice on your credit report that details your attempt(s) to apply for some type of new credit, whether it be a mortgage, auto loan, or credit card. Credit inquiries show up on your credit report (whether approved or not) so other creditors can determine if you’ve been trying to secure new lines of credit recently, which research determines can lead to greater credit risk.
With regard to Fico scoring, about 10 percent of the score comes from new credit, which includes credit inquiries. So it is important to apply for credit wisely to ensure you don’t cause unnecessary harm to your credit score. When you see the notice, “too many credit inquiries” on your credit report, it means you exceeded that magical limit of credit pulls within a certain time period, and as a result, will lose points on your credit score.
This magic limit is unknown and also dependent on your overall credit profile and credit history, but they say more than 6 pulls on your credit report is typically synonymous with greater credit risk.
How Long Do Inquiries Stay on My Credit Report?
Although there seems to be much dispute about this, credit inquiries remain on your credit report for two years, but Fico scores only factor in inquiries as part of their scoring methodology for the previous 12 months.
Additionally, Fair Isaac, the founder of the Fico score, has improved its scoring model to distinguish rate shopping vs. a consumer attempting to open a large number of accounts. The latter would probably see their credit score drop because a series of new credit accounts poses a greater credit risk. But a consumer with multiple inquiries related to the same type of loan within a 14-45 day period will generally see no adverse effect to their credit score, as only one inquiry will be counted.
Do Credit Inquiries Lower My Credit Score?
A credit inquiry can lower your credit score, but their impact is generally rather inconsequential. Typically, a single credit inquiry will take less than five points off your credit score, but this can range depending upon the type of inquiry and the overall makeup of your credit profile. If you have a limited credit history, one inquiry will have a greater impact than a consumer with a solid 10-year credit profile.
As mentioned above, a large number of inquiries can be a red flag for potential creditors, and could result in a lower credit score. And even if you do have a solid credit score, a large number of inquires could cause a creditor to decline your application.
Not All Inquiries Count Against You
That said, don’t fret too much about pulling your own credit report every now and then, as not all credit inquiries count against you. If you order a credit report online from any of those “free credit report” sites, it won’t be factored into your score because it’s not an application for credit. It’s simply a check-up, and doesn’t signal a greater credit risk for the consumer. Same goes for employee credit pulls and pre-approved credit offers. As a rule of thumb, if the credit pull doesn’t involve new credit, it shouldn’t affect your credit score.
Hard Pull Vs. Soft Pull
You may have heard the term “hard pull” and “soft pull”. A “hard pull” refers to credit inquiries that actually affect your credit score, which are generally initiated by the consumer and involve new credit. A “soft pull” on the other hand is innocuous, and includes credit reports you pull yourself, or those pulled by an employer.
In conclusion, don’t overemphasize the effect of credit inquiries. Things like paying bills on time and keeping your balances low are much more important, and impact your credit score a lot more. As long as you practice moderation, you should enjoy a solid credit score.
Tip: Review the credit inquiries on your credit report to ensure that you recognize them all. If you see anything that doesn’t look familiar, there could be possible identity theft. If you suspect anything, contact the creditor you don’t recognize for further information.