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Scores

Understanding Inquiries


What is an "inquiry"?

When you apply for credit, you authorize those lenders to ask or "inquire" for a copy of your credit report from a credit bureau. When you later check your credit report, you may notice that their credit inquiries are listed. You may also see listed there inquiries by businesses that you don't know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

How Long do Inquiries stay on my credit report?

Although inquiries will remain on your file for up to 2 years, those in the last 6 months will count most heavily against you.

What is the difference in a “HARD” and “SOFT” Credit Inquiry?

  • A hard inquiry is when a person or organization requests your credit score and history and they intend to make a lending decision. Applying for a credit card? Hard inquiry. Getting approved for a car loan or mortgage loan? Hard inquiry. On your reports, each of the credit unions categorize these inquiries differently. TransUnion calls them "regular inquiries," Experian calls them "requests viewed by others," and Equifax calls them "Inquiries in the last 12 months." Hard inquiries usually drop your score by a few points for six months, then their effect is removed. This is why it's usually NOT a good idea to apply for credit cards before you get a mortgage loan

  • A soft inquiry is everything else. They are often used by a person or organization when they don't intend to make a lending decision, though there are exceptions from one institution to another. Landlords and prospective employers will use them to assess your financial risk. Banks often use soft inquiries to confirm your identity. Credit cards and mortgage lenders use them to decide whether to pre-approve you for a card or a loan. When you check your own credit history, that's a soft inquiry. Soft inquiries have no effect on your score.

    • What are some of the different types of credit inquiries?

    There are different types of inquiries and some are nothing to worry about. The following is an example of inquiries and what they mean.

    You reviewed your credit: This is where you have have requested a copy of your credit report. This is a "soft" inquiry and does not negatively affect your credit. It is not seen by potential creditors. (Neutral)

    Credit Bureau Review: This again, has no impact on your credit and simply means the bureau reviewed your file. (Neutral)

    Creditor review: This is simply a standard review that is done by existing creditors. It also does not impact your credit. (Neutral)

    Credit Request: This can be negative if you have too many. Inquiries remain in your profile for 2 years, so too many of this type can be negative and result in denials. (Negative)

    Collection agency review: Very negative. If you have any inquiries from a collection agency who has begun collecting on an expired debt (expired under the statute for reporting, which is 7 years) then that does not qualify for a permissible purpose and should be removed. Inquiries from a collection agency are very negative. 

    IRS: Very negative. Inquiries from the IRS usually tell a potential lender that you are either being audited or have a tax lien pending.

    Tenant Screening: This type of inquiry is O.K. It simply shows you are moving or did move and the landlord ran a credit check. (Neutral)

    How much do credit inquiries affect my credit score?

    Typically, inquiries have a very small impact on your credit score. In a credit scoring model, there are other stronger indicators of future payment performance, such as delinquencies and payment history, balances owed, and the length of time you have used credit. Inquiries usually carry the most weight if you have a limited credit history or if there are other existing issues such as late payments or high debt. Inquiries are rarely, if ever, the only reason for poor credit scores or being declined for credit. You should, however, limit the number of inquiries you authorize whenever possible.

    Why do credit inquiries affect my credit score?

    Lenders are interested in inquiries because multiple inquiries are an indication that you are requesting new credit. The credit scoring agencies have found that borrowers who request credit frequently tend to be higher risk borrowers. Thus, frequent inquiries on your credit report that result from frequent requests for new credit (credit cards, loans, etc.) can lower your credit score. (The lower your score, the more risk the lender sees in lending to you.)

    What is Rate Shopping?

    Credit reporting agencies understand that borrowers need to shop around to find the best loan, which can create multiple inquiries in a short time. To address this, the scoring formula doesn’t penalize borrowers for shopping around. The score is set up to take into account that even though you are looking for only one loan, multiple lenders may request your credit report. Here’s what Fair Isaac, the company behind your FICO score, says about rate shopping:

    “The score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

    Does the formula treat all credit inquiries the same?

    No. Research has indicated that the FICO score is more predictive when it treats loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for rate-shopping inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

    Will ordering my own credit report appear as an inquiry on my credit report?

    Anytime your credit report is pulled - including when you order a copy of your credit report directly from the credit reporting company - an inquiry is added to your report. Only some of those inquiries appear to creditors and therefore impact your credit score. Inquiries that were made for credit cards or loans for which you applied will be shown to creditors. Inquiries added when you request a copy of your credit report or when an employer checks your credit report do not appear to creditors. We are pulling your credit report on your behalf, so the inquiry on your credit report will not be shown to creditors and will not affect your credit score.

    However, ALL inquiries will be displayed on copies of your credit file disclosure that you order directly from the credit reporting companies' consumer assistance centers. This is done so you know who has been looking at your credit. Some inquiries on your report are accompanied by a description of why the report was pulled.

    Does applying for credit cards hurt my credit?

    Every time you apply for credit, a credit inquiry will appear on your credit report. Multiple credit inquiries are considered a sign of increased risk, and can lower your score slightly. The more information your credit report contains, the less impact credit inquiries will have on your credit score. If you have a short credit history, inquiries could lower your score by a few points. It is best to do as much research as possible to determine which credit card offers are best for your financial situation before actually applying. However, FICO does take comparison shopping into account when calculating your credit score, and for that reason, if you have multiple credit inquiries within a 30 day period, they will only be counted as a single inquiry.

    Is there a best way to go about applying for new credit to minimize the affect to my FICO score? 

    First off, don't sweat this too much; applying for new credit only accounts for about 10% of your FICO score, so the impact is relatively modest. Exactly how much applying for new credit affects you depends on your overall credit profile and what else is already on your credit report. For example, applying for new credit can have a greater impact on your FICO score if you only have a few accounts or a short credit history.

    Why do lenders and creditors even consider the number of inquiries on a report?

    Inquires can be a good indicator of credit risk. Studies have shown that the more inquiries that appear on a consumer’s file, the more likely it is that the consumer may not be able to pay his or her bills. Furthermore, too many credit inquiries may indicate to a creditor that the consumer is “credit hungry” and may be in financial trouble. Finally, and most significantly, the creditors may believe that many of the recent inquiries have resulted in actual lines of credit that have not yet appeared on the consumer’s credit report, leading the creditor to believe that the consumer’s debt-to-income ratio is much higher than actually reported.

    How much will credit inquiries affect my score?

    The impact from applying for credit will vary from person to person based on their unique credit histories. In general, credit inquiries have a small impact on one's FICO score. For most people, one additional credit inquiry will take less than five points off their FICO score. For perspective, the full range for FICO scores is 300-850®. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your score are how timely you pay your bills and your overall debt burden as indicated on your credit report.

    What can I do if there are credit inquiries on my report that I did not authorize?

    If in reviewing your credit report you find credit inquiries you did not authorize, there is a process you can go through to have these inquiries removed.

  • First, determine which credit inquiries you need to have removed. Identify only those credit inquiries which are shown to potential creditors (hard inquiries). You should recognize some of these inquiries as places where you have applied for credit; however, others may be completely unfamiliar.
  • Find addresses for each of the credit inquirers that are unfamiliar to you. You cannot dispute inquiries to the credit bureau; they are not responsible for investigating inquiries and will not remove one unless instructed by a creditor. In looking for the addresses for credit inquirers, you may want to use an Experian report, since this is the only credit bureau that lists the addresses for you.
  • Prepare letters to each inquiring creditor asking them to remove their inquiry. You should send these letters directly to the creditors by certified or registered mail.
  • Review the responses you receive from each of the creditors. Some may provide documentation that a credit inquiry was authorized by you. Some may simply agree to delete the inquiry. Be sure to follow up and make sure that the creditor deletes the inquiry. Some creditors may simply ignore your request. If you do not receive a response within thirty days, contact the creditor directly and address the issue with them again.
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