How Do Inquiries Affect Credit?
April 4th, 2008 by Kenneth Long
All inquiries appear on your credit report. Some affect your score and some do not.
Those that do affect your score may change it by a point or by several points. Here are the facts on inquiries.
What is an Inquiry?
An inquiry is a review of your credit report. This is commonly referred to as a credit check. These can be voluntary, meaning you initiated the credit check, or they can be involuntary, meaning that a company asked to review your credit.
Both voluntary and involuntary inquiries show up on your credit report. Some affect your score and some do not.
Inquiries that Affect Credit Scores
Inquiries that can change your credit score are known as hard inquiries. Hard inquiries are a signal to the credit bureaus that you are trying to obtain debt. These are examples of hard inquiries:
- Submitting credit card application
- Submitting loan application
- Applying for a store card
- Attempting to refinance a loan
The number of hard inquiries that you are attempting will determine the impact on your credit score. Additionally, the number of total records on your credit report could also alter the impact of hard inquiries.
Generally speaking, numerous inquiries in a relatively short period of time, such as within 6 months, will reduce your score several points. If you have few credit records, it could reduce your score by many points. If you have many positive accounts, then it may only drop your score by a few points.
One hard inquiry will generally reduce your score 1 to 5 points. The presence of several other hard inquiries and a lack of positive accounts could cause your score to drop by many points.
An exception to this rule is made when you are applying for either a vehicle loan or a home loan. All vehicle loan inquiries within a 45 day period are generally grouped together and count as only 1 hard inquiry.
Likewise, it also benefits you to shop around for a home mortgage, since all mortgage inquiries within a 45 day period are also generally grouped as only 1 hard inquiry. The credit bureaus allow you some leeway to shop around for the best rates on your big ticket purchases.
What are Soft Inquiries?
Soft inquiries are credit checks that also appear on your credit report, but they do not impact your scores. They serve as a record for all credit pulls. These are examples of soft inquiries:
- Account reviews
- Promotional credit requests
- Employer credit checks
- Landlord credit checks
- Insurance credit checks
- Self-credit pulls
Account reviews are routine credit checks by your existing creditors. Major credit card companies frequently check your credit to look for signs of financial distress. Although universal default is becoming less common due to Congressional pressures, creditors do this to evaluate your changing risk.
Promotional credit requests are indications that a creditor has purchased your credit file for the purpose of sending you solicitations. They may frequently purchase a list of tens of thousands of consumers that meet requirements for a certain credit offer.
Some employers and landlords will pull your credit. They are looking for signs that your finances are in order, and that you can be trusted to behave responsibly. Insurance companies have similar agendas when pulling your credit.
If you pull your own credit report, such as through the annual credit report service mandated by Congress, it also appears on your report. This has no impact on your score. Additionally, housing counselors can pull your credit scores without affecting them.
How Long do Inquiries Remain?
All inquiries will be removed from your credit report after 2 years. Even though inquiries stay on your credit report that long, many hard inquiries have little to no affect on your scores once they are more than 1 year old.
This entry was posted on Friday, April 4th, 2008 at 11:02 am and is filed under Credit Scores. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
June 18th, 2008 at 2:12 pm
what is the same day elimination act? How can I find more info on it.
Please call me at anytime.
Barry (number edited for privacy)
June 18th, 2008 at 3:22 pm
Dear Barry:
This Same Day Elimination Act is not commonly referred to by this name. What this refers to is an action by credit bureaus to reduce duplication of results.
First American CREDCO offers the following information regarding its ANTHEM score (ANTHEM is a credit score model that utilizes alternative credit data):
“Inquiries sums up the total number of inquiries in the last six months. Inquiries made on the same day are subtracted to takeout several “like” inquiries to give a clearer picture. If a consumer, for example, shopped for a new car on one day, they might have four or five inquiries from different dealers and lenders.”
Of course, newer credit scoring models group all vehicle inquiries in a 45 day period together, in which they collectively count as only 1 hard inquiry. The same is true of mortgage inquiries made within a 45 day window.
The purpose is to allow for you to shop around for the best credit offer without incurring the additional penalty of multiple hard inquiries posting to your credit report. They will still show, but they are grouped together and count as one.
June 23rd, 2008 at 3:57 pm
[...] Each hard inquiry can affect your credit scores by anywhere from 1 to 5 points. The extent that your scores drop depends on the amount of credit items reported to credit bureaus as well as the presence of other hard inquiries in the past 6 months. Numerous hard inquiries or a short credit history can cause each additional hard inquiry to have a greater negative effect (See How do Inquiries Affect Credit?). [...]