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:
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:
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:
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).
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