Do Credit Inquiries Affect your Credit Score?

tumblr_n6rz3iGDUA1st5lhmo1_1280

If you’re thinking of pursuing several different lines of credit in a relatively short period of time, such as an auto loan, student loan and a mortgage, you may have heard that inquiries into your credit can potentially affect your overall credit score. We’re here to break things down for you, and explain exactly how everything works.

What is a credit inquiry?

Anytime you apply for credit, the lenders you approach submit an “inquiry” for a copy of your credit report from a credit bureau. Later, when you check your credit report, any inquiries that have been made into your credit will be listed on the report. You may even notice inquiries made by businesses you don’t recognize. Fret not, only the inquiries that come as a result of your application for new credit directly affect your FICO score. Moreover, although inquiries remain on credit reports for two years, only inquiries incurred during the past year figure into that credit score.

Does applying for credit affect my credit score?

Research has shown that opening several credit card accounts within a short time can signify that the borrower may represent a comparatively greater risk than others who appear less dependent upon credit. When your credit report reflects this kind of activity, your score may lower as a result. Keep in mind, however, that rate-shopping among several prospective mortgage grantors or auto lenders within a very short period of time (usually, during an inclusive 30-day period) will only count as a single inquiry. If you prolong that car search for several months, though, the multiple inquiries will likely debit your score more significantly.

How much will credit inquiries affect my score?

Everyone’s credit history is unique, so the impact of a credit inquiry on a FICO score will vary from person to person. Generally, though, a single additional credit inquiry may debit a FICO Score from one to five points. Although even one point can, in rare cases, cause a consumer to move from one risk category to another, in most cases the presence of a single inquiry will have little to no practical impact since the FICO scores range from 300-850. Of course, inquiries can have a greater impact if there are a great many of them, or if the consumer has a short credit history. As we said before, large numbers of inquiries represent greater risk. Far more important to your credit health is your record of on-time payments and the overall debt burden you carry.

Are all credit inquiries equal?

No. It’s important to remember that follow-up inquiries made by existing creditors after a successful credit application are termed “soft” inquiries by credit bureaus and don’t figure into your credit score at all. Moreover, inquiries made as a result of employment or insurance applications similarly have no impact upon credit scores. As mentioned before, “rate shopping” with multiple companies within a single month for a car loan or mortgage only count as a single inquiry. Finally, inquiries that have appeared within a consumer’s credit report for more than a year will not impact a score as well.

The biggest takeaway to remember regarding how inquiries may impact your financial reputation is this: Too many inquiries will paint you as someone who lenders will term “credit dependent” or “credit-seeking” — in other words, someone who looks like he or she may depend upon borrowed money just to get by. Since credit scores are designed to help lenders assess their risk, that’s why too many inquiries will damage an applicant’s credit score.

Posted in Credit Score
Learn how it works

Questions about credit repair?

Chat with an expert: 1-800-255-0263

Facebook Twitter LinkedIn