How Inquiries Can Affect Your Credit Score

If you have checked your credit report lately, you may have noticed an “inquiries” section. An inquiry refers to a request to look at your credit file and falls into one of two camps: hard or soft.

A credit inquiry occurs when you apply for a credit card or loan and permit the issuer or lender to check your credit. Some inquiries have no effect on your credit, but others can lower your credit score.

Knowing the difference between the two types of credit inquiries and how inquiries affect your score is a must.

What Is a Credit Inquiry?

A record of a request for your credit report is called a credit inquiry. You’ll see an inquiry on your credit report anytime someone pulls your report from one of the three national credit bureaus.

Your credit report will tell you who has accessed your credit data and when. You will see lenders or card issuers on your report if you have applied for credit.

Other firms may request your credit report to provide an insurance quote or a background check. And sometimes inquiries may occur without your knowledge or permission.

Inquiries typically stay on your credit report for about two years. But they only factor into your FICO credit score for one year.

Do All Credit Inquiries Hurt Your Credit Score?

Not all credit inquiries are equal. Some types may indicate higher credit risk, and others do not. Even the two major credit scoring models, FICO and VantageScore, do not treat them the same way.

Unlike hard inquiries, soft inquiries will not affect your credit score. Here is more about both types of credit inquiries:

Soft credit inquiries. A credit application does not trigger a soft inquiry. Examples of soft credit inquiries include:

— You check your own credit report.

— One of your creditors checks your report.

— An insurer pulls your credit for a quote.

— A company views your credit report for a background check.

— You seek pre-approval for a loan or credit card or apply to pre-qualify for credit offers.

An interesting feature of soft inquiries is that only you and the credit bureau can see them.

Hard credit inquiries. A hard inquiry is linked to an application for credit, such as a mortgage, a credit card or an auto loan. It will appear on your credit report, and too many could hurt your score.

You can relax if you’re rate shopping and you apply for a few loans to get the best interest rate. Applications for the same type of loan within a certain time span will only count as one hard inquiry on your credit report.

Does Checking Your Credit Score Lower It?

Many myths surround credit inquiries. You may have come across a few, such as:

— Checking your credit score will lower it.

— Every time you apply for credit, your credit score drops.

— Requesting a copy of your credit report will damage your credit score.

Of course, none of these statements is true. Checking your own credit will never lower your score. You can, and should, check your three credit reports several times a year to make sure they’re accurate.

Why Do Credit Inquiries Lower Credit Scores?

Some people struggle to understand why certain types of inquiries could damage their credit score. Credit inquiries signal credit risk because you’re looking for credit — and could get in over your head.

How Many Points Do You Lose From a Credit Inquiry?

Inquiries aren’t worth a specific point value in FICO’s credit scoring models. What matters more to your credit score is the number of hard inquiries on your credit report in the last 12 months.

One inquiry may subtract up to five points from your FICO credit score. That said, try to keep the effect of inquiries in perspective.

Hard inquiries affect only 10% of your FICO score and 5% of your VantageScore.

Still, only apply for credit when you need it, he adds. Limiting inquiries is wise, but you don’t have to fear applying for new credit when you will use it responsibly.