04
Mar

A number of reasons can cause your credit score to go down. Late pays, bankruptcies, foreclosures and high debt ratios all lower your credit score.    Did you also know your score can be decreased due to the number of inquiries you’ve had?

An inquiry occurs when someone requests a view of or data from your credit report. All inquires stay on your credit report for 2 years.

Someone can’t just pull your credit report at random.  To address privacy concerns, the law (the Fair Credit Reporting Act) limits the access to your report.  Anyone requesting a view of your report must have what is known as permissible purpose. Permissible purpose is granted:

  1. Through court order
  2. When the information is used to determine insurance quotes
  3. When the information will be used to determine suitability for employment
  4. With written permission from the consumer.
  5. To review an account to determine whether the consumer continues to meet the terms of the account.
  6. To determine the eligibility of a person to get a license or other government benefit.

The effect of inquiries on your credit score can be confusing and does not seem to be well understood by the American public. For most consumers, a single hard inquiry only results in loss of less than 5 points, according to Fair Isaac, the company who developed the FICO score.  Another happy piece of news: only hard inquiries from the last 12 months count towards your score.  We’ll discuss the difference between hard and soft inquiries in the answer to a recent question that I received:

Q. I applied for a credit card and was turned down.  One of the reasons listed was “You have too many inquiries on your credit report”.  I have applied for other credit cards recently – did I ruin my chances of getting a new card?  By the way, I’ve never been late paying on any of my loans.

A.  The impact of inquiries on your credit report should be small, a matter of a few points per request.  The total effect depends on the type and number of credit report pulls that you had.   There are two types of inquiries, hard and soft.

A soft inquiry occurs when:

  1. Your data is accessed for a pre-approved offer of credit.  With pre-approved offers, individual credit reports are not actually accessed. Your information and credit score is sold as you are determined to be a “likely person who would get approved for X offer if he/she applied”.  These types of inquiries are called promotional inquiries.
  2. An existing creditor wants to review your report.   Existing creditors want to mitigate their risks by keeping track of how your credit rating changes.  Should you start to miss payments on many accounts, the creditor may want to reduce or close your line of credit.
  3. An insurance company uses your credit for a premium quote.
  4. Potential employers review your credit report.
  5. You request a copy of your own credit report.

Please note: debt collectors (they are considered creditors) are allowed to pull your credit to see if there is recent credit activity.   They are interested in whether or not you are opening new accounts – if you are, you may be now able to pay delinquent accounts that have been collecting dust for the past few years.

Soft inquiries are not counted toward your credit score and are not shown to potential lenders.

A hard inquiry occurs when a person applies for new credit.   Each hard inquiry does count against your credit score and is viewed by potential lenders.   Now that we’ve said that, there are exceptions to this rule.   If you’ve been doing some rate shopping, say talking to several lenders about a home or auto loan, all report viewing requests within a 14-45 day period (depending on the scoring model) count as one inquiry as far as the scoring model goes.

To view your inquiries, you need to get your hands on a copy of your credit report.  The best place, and cheapest (free), is annualcreditreport.com.

Once you have your credit report in hand, it’s time to dive into this confusing mass of information.  In order to help you decode it, I pulled my own credit report from annualcreditreport.com to see how each bureau structures their information.

Transunion:  Inquiries are divided into “Regular Inquiries” and “Account Review Inquiries”.   Only Regular Inquiries are hard inquiries and count against your score.

Equifax: Inquiries are identified by the self-explanatory “Inquiries that may impact your credit rating”(hard) and “Inquiries that do not impact your credit rating” (soft).   In addition to the date and company requesting your report, Equifax gives detailed information on each of soft inquiries.

Experian: Inquiries are divided up into “Requests Viewed by Others” and “Requests Viewed Only by You”.   Only Requests Viewed by Others are hard and can impact your credit score.

If you didn’t get your information from your annualcreditreport.com, it’s hard to say how the information will be presented.  Some investigation is required.

If the report doesn’t break inquiries into hard/soft categories:

  1. See if you can dig out the promotional inquiries. Have you received any of pre-approved offers in the mail recently?  If you recognize any of the banks listed, most likely these listings were promotional offers.
  2. You can also cross off listings from existing creditors as soft.
  3. After performing steps 1 and 2, any inquiries remaining on your credit report can be considered hard.  If you don’t recognize those remaining inquiries, it could be a sign that you are a victim of identity theft, so don’t be shy about investigating these.  A call to customer service (Google the number) can verify whether or not you applied for credit from the listed company.

Did you really get turned down due to inquiries?  It’s possible, but doubtful.  A credit score factors in many things: age of credit lines, payment history, ratio of used to available credit (credit utilization). You didn’t give clues about the rest of the information in your credit report.  If your payment history is on time, the most likely culprit is your credit utilization, the second biggest weighting factor in scoring.  If you use more than 25% of your available credit, you are going to get hit with a pretty big score drop.

In your case, it sounds to me as if you were sitting in a “marginal” area, score wise, where a few points subtracted could make the difference between good and “marginal” credit risks.    I’d look at your credit report as a whole to see where you can improve your rating (like paying down your credit cards).


Posted in Credit Repair