What are the Effects of Inquiries on my Credit Score?
If you are wondering how inquiries affect your credit score, you must first understand the different types of inquiries. All appear on your credit report, but they do not necessarily affect your credit. Additionally, their effects may not be the same.
One type of inquiry is known as a "soft" inquiry. It includes all requests to view your credit file that are NOT attempts to obtain more debt. In other words, you are not filling out a credit application. These can include promotional inquiries by credit card or other loan companies. They are typically coded "PRM" for "promotional" inquiries. These summarize every company that purchased a list of consumers that included your name from a credit bureau. Usually, all names on the list have something in common, such as a similar credit score or other attribute. This is how they send you "pre-approved" offers. These do not affect your credit score in any way.
Soft inquiries also include requests that you make to the credit bureaus to pull your own credit report. These self credit pulls do not affect your score, and they usually appear with an "ID" notation. You are not penalized for pulling your own credit report.
When an employer or apartment rental agency pulls your credit report, these are also types of soft inquires. These do not affect your credit score. Similarly, credit pulls from insurance providers and utility companies (excluding cellular
phone service) generally have no effect on your credit score. FICO scoring models exclude insurance inquiries from the scoring calculation.
Hard inquiries are actual requests for debt. If you fill out a credit application, that is a hard inquiry. It indicates that you are requesting credit from that company. Each hard inquiry can pull your credit score down up to five points. If you have a limited credit history, then each inquiry could drop your score more than five points. Numerous hard inquiries within a six month period can also cause substantial drops in your credit score.
One change to the FICO credit scoring model allows for multiple credit applications for a mortgage or an automobile loan without substantial damage to your score. You now have up to 45 days to pull multiple credit applications on either a home mortgage or an auto loan in order to get the best rate. These inquiries are grouped together and count as only one inquiry on your credit score. When the finance department at a car dealership pulls your credit report, they may initiate several applications all at once to see which lenders respond first. You are not penalized for this, as they will all be counted as only one inquiry. When you are shopping around for a lower mortgage rate, it benefits you to file several mortgage applications within that 45 day period to get the loan with the best terms and lowest rate possible.
If you do have multiple hard inquiries on your credit file, then you may wish to consider holding off on new applications for a while. Multiple hard inquiries can signal financial distress, which can make prospective lenders nervous. The good news is that by waiting only six months, it can help you improve your creditworthiness. Also, inquiries will drop off your credit report completely after two years.
Inquiries have a limited effect on your credit score. What is more important are the actual credit accounts that make up your credit history. Concentrate on taking care of those accounts, and your credit score will improve.
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