When you seek out new credit, a credit inquiry gets added to your credit report each time. If you’ve heard the term inquiries before, you might think that they’re all created equal, but the truth is, there’s more to inquiries than can initially meet the eye. For instance, when you check your own credit, that creates an inquiry of a different type – and one that doesn’t ever impact your credit scores. While you’re allowed to check your own credit report as often as you like without hurting your scores, other types of inquiries can actually impact your credit scores when they add up in a short period.
What kind of inquiries are there?
Credit bureaus sort credit inquiries into two categories—hard inquiries and soft inquiries. Hard inquiries—the ones that can affect your credit scores—result when a lender reviews your credit report in response to your application for new credit. For example, applying for a mortgage, car loan, credit card, larger line of credit or student loan can each result in a hard inquiry that appears on your credit report. When you reach out for new credit, know that the process of finding the right new addition to your credit mix can deliver a ding to your scores if your report is pulled. Be selective when you’re thinking about expanding your credit footprint, and don’t be swayed by offers of free toasters or other ‘special’ gifts.
On the other side of things, soft inquiries don’t affect your credit. Soft inquiries are generated when checking your own credit; an employer pulls your credit report as part of a job application process; or when a credit card company extends an offer of credit to you as part of its pre-approval process. Again, these types of inquiries don’t impact your credit.
How much impact can they have?
The number of inquiries on your credit report (or, “recent credit”) counts for 10 percent of your FICO(R) Score powered by Experian data, the smallest of any of the credit scoring factors. However, according to Experian, it’s impossible to predict exactly how much your scores might change as a result of a single inquiry – or multiple inquiries – since everyone’s credit situation is different. For example, one additional inquiry might have a very different impact on your credit versus the credit of your neighbor. Moreover, Experian says that applicants aren’t usually turned down for credit based solely on the number of inquiries on their credit report, since it’s by far not the most important factor in that scoring model.
How long are they important in a credit score?
Inquiries remain on your credit report for two years after a lender’s initial query of your credit. However, the older the inquiry, the less of an impact it has on your credit scores. For example, an inquiry from a credit card you applied for last week usually has a much more significant impact on credit scoring than an inquiry which resulted from an application for credit 21 months ago.
When it comes to calculating your credit scores, inquiries for auto loans and mortgages can sometimes receive special treatment. If you have multiple inquiries for the same type of loan in a short period of time, those inquiries can be counted as one inquiry when figuring your credit score. For example, if you apply for five car loans in the same two-week period, you’ll see five inquiries on your credit report; however, for credit scoring purposes, those five inquiries may be treated as a single inquiry, since lenders understand that you probably weren’t trying to purchase five cars in two weeks.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.