Credit Series: Inquiries

This is the sixth part of my Credit Series, where I explain the most important aspects of credit, credit reports, and credit scores. Each installment focuses on one factor influencing credit, tools to monitor and improve credit, or an explanation of a specific credit concept.

The final 10% of your credit score is based by the number of inquiries you have on your credit report. Some types of inquiries can lower your credit score if they have occured in the past year.

Inquiries are a result of applying for credit and are placed on your credit report each time a business requests a copy of your report.

However, not all inquiries on your report affect your credit score. Only inquiries that are made because you are applying for credit affect your score. These voluntary inquiries are called “hard” inquiries and will lower your score slightly.

Soft” inquiries, ones that are made by creditors who send “pre-approved” credit card offers, ones made by you through an online service, and by potential employers, are not counted against you. When you request your own credit report, all inquiries appear. However, when lenders and creditors look at your creit report, only the hard inquiries are shown.

Since inquiries only affect your score for the first 12 months they are on your report, the damage to your report is usually temporary.

What If I Need a Car Loan or Mortgage?

If you are in this situation, you may not want to simply take the first offer you get. But shopping around will result in more inquiries, right? Wrong. If you do your “shopping around” within a 14 day period, all of those inquiries will only count against your score once. So you don’t have to worry about the 3rd or 4th request for credit as long as it all happens within a 2 week span. For the latest version of the FICO score, this period is 45 days.

This category is worth relatively little, and by being smart with your inquiries, you can earn the maximum number of points for this category. But don’t be afraid to ask for credit when you need it: after 12 months, these inquiries are no longer counted against you.

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