Dear Dr. Don,
In May, I opened a new CD at Wells Fargo and deposited less than $60,000. The bank also automatically opened a checking account for me.
I requested no loans from this bank, yet I noticed on my credit report that they did a hard inquiry on my credit history. Is this normal procedure? I've never had any other bank do this before. Does it have something to with the Patriot Act?
-- Frances Fulminate
Some financial institutions make a practice of doing a hard inquiry on a depositor's credit report when opening a new deposit account. It doesn't make sense from the depositor's perspective because they're not requesting a loan, they're making a deposit.
A hard inquiry is typically a loan application and a soft inquiry is simply the monitoring of the consumer's credit report. A hard inquiry impacts your credit score where a soft inquiry does not.
I've had other readers ask whether the Patriot Act is the reason for lenders taking this approach. I've been told informally that this is the stuff of urban legend -- the Patriot Act doesn't require this bank action. The Patriot Act does, however, require banks to know their customers as discussed in the Bankrate feature, "Patriot Act Compliance."
In an earlier column, "Savings history hardly impacts credit," I asked Craig Watts, public affairs manager at Fair Isaac Corp., to weigh in on the issue. Here's what he wrote:
"Bottom line, credit inquiries are usually a very minor contributor to a person's FICO score and simply aren't worth getting worked up about. In most cases, a hard inquiry costs the person's score less than 5 points. People can help themselves by focusing their energy on the basics in score management: pay bills on time, keep card balances low and take on new credit only when it's needed."
A hard inquiry stays on your credit report for two years but only influences your credit score for one year.