How credit inquiries affect your credit score


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If you’re looking to increase your credit score, chances are you’re watching many factors. You’re making sure you pay your bills on time, because your payment history counts for 35% of your credit score. You’re also watching your credit utilization ratio, which counts for 30% of your FICO score.

But did you know that credit inquiries can also lower your credit score?

That’s right. As crazy as it sounds, the simple act of applying for new credit can actually reduce your credit score.

And it’s not just applying for a loan or new credit that can reduce your score – signing up for a new cell phone plan, opening utilities or even renting an apartment can all cause credit inquiries to show up in your file.

Which type of inquiries impact your score, by how much, and for how long? And – most importantly – should you worry about credit inquiries and their impact on your score?

Credit inquiries defined

When a bank or prospective creditor requests your credit file, you’ll see a notation on your credit report indicating a “credit inquiry.”

You may see two types of inquiries that appear on your credit report: Hard inquiries, which can reduce your credit score slightly, and soft inquiries, which don’t affect your score.

A hard inquiry vs. a soft inquiry

If you apply for a loan or credit card and the lender pulls your credit file, you’ll see a hard inquiry on your credit reports. But other types of applications can also result in a hard inquiry.

These include:

  • Starting a new cell phone plan
  • Opening a utility (such as turning on electric in a home or switching cable / internet providers)
  • Renting an apartment

Any of these activities indicate that you could be taking on additional financial obligations in the near future, which could make you a greater credit risk until you prove you can handle those obligations by making the payments on time.

You must provide permission – sometimes just by filling out the application – for a company or lender to perform a hard credit check.
On the other hand, if someone pulled your credit file without your knowledge or permission, this will show up as a soft inquiry. Soft inquiries are usually not indicative of a firm financial commitment, so they don’t affect your credit score.

Soft inquiries include:

  • Credit checks from employers
  • Pre-approved offers for loans, credit cards or insurance
  • Credit limit increases (or decreases) on your credit cards that you did not request

Additionally, any time you pull your own credit files from Experian, TransUnion or Equifax to assess your own credit history, it counts as a soft inquiry and won’t affect your credit score.

How inquiries are scored

Even if you have several hard inquiries on your credit report, there’s no reason to worry. Inquiries don’t count as much as payment history, credit utilization, or any of the other factors that make up your FICO credit score.

For most people, a single inquiry will take less than 5 points off your score, and the effect will only last for 12 months, according to FICO, the company responsible for the industry-standard scoring model. The inquiry can stay on your report for up to two years but won’t affect your credit score after the first year.

Why do credit inquiries matter? If you have greater than six inquiries, you could be at greater risk of bankruptcy and your credit score will reflect that risk.

Similarly, a consumer scrambling to open new credit accounts could be anticipating a financial loss or increased expenses, which increases the likelihood of late or missed payments.

As with other factors affecting your credit score, if you have a shorter credit history or few accounts, the impact of hard credit pulls will be greater than if you have a lengthy history and many accounts that you pay on time each month.

How multiple credit inquiries can affect your score

Fortunately, the major credit bureaus and FICO understand that you’re likely to have multiple credit inquiries if you are rate shopping for something like a mortgage, car lease or loan or student loans.

For this reason, multiple inquiries for the same type of credit – say, an auto loan or a mortgage – are considered as a single inquiry if they occur within a specific time span. Older FICO scoring models consolidate inquiries made within two weeks, while the newest FICO score gives consumers 45 days to shop around for the best rates and terms.

In addition, inquiries aren’t reflected in your credit score for 30 days from the date of the first inquiry, so shopping around for a new credit card or a loan won’t affect your credit while you’re shopping. This could make a big difference in your interest rates if you are on the border between “good” and “excellent” credit.

Bottom line

As long as you don’t rush out and open a ton of new accounts, a credit inquiry on your credit report will reflect just a small blip in your credit score. To minimize the impact, continue to make all your payments on time and keep your credit utilization ratio below 30%.

Credit inquiries are an important part of managing your credit. Shop wisely and make sure to cluster all your inquiries for the same type of loan or credit within a brief time frame and credit inquiries should not affect your overall financial health.