What Are Credit Inquiries?

What are credit inquiries? Are you concerned about what happens to your credit score when someone runs your credit. Does it harm your credit when you apply for a Visa, JC Penny or Wal-Mart card? How about when you apply for a car loan or a mortgage loan? Or is there no effect when your credit is "pulled?" This section will enlighten you on what happens when you or someone else checks your credit.

What is a credit inquiry? An inquiry is an item on a credit report that shows a business with a "permissible purpose" (as defined under the federal Fair Credit Reporting Act) has previously requested a copy of the report.

For example: Employment credit check, mortgage company or bank or an auto dealership.

Not all inquiries count toward your FICO score. When you check your credit report, you may notice that a number of credit inquiries have been made, sometimes from businesses that you don’t know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

For example: JC Penny, Discover, Best Buy and Target.

INQUIRIES THAT COUNT TOWARD YOUR FICO SCORE. There is only one type of credit inquiry that counts toward your FICO score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your FICO score.

INQUIRIES THAT DON'T COUNT TOWARD YOUR FICO SCORE. Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.

YOUR FICO SCORE IS NOT AFFECTED WHEN YOU CHECK YOUR CREDIT.
Checking your credit reports regularly to be sure they are accurate and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your FICO scores over time. You may check your credit report for FREE at annual credit report.

HOW INQUIRIES ARE FACTORED INTO FICO SCORES.
Inquiries are a subset of the "new credit" category which accounts for 10% of the total FICO score. Their importance depends on the overall information in your credit report.

INQUIRIES MAY OR MAY NOT AFFECT YOUR FICO SCORE.
A FICO score takes into account only voluntary inquiries that result from your application for credit. The information about inquiries that can be factored into your FICO score includes:

Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.

Number of recent credit inquiries.

Time since recent account opening(s), by type of account.

Time since credit inquiry.

A FICO score does not take into account any involuntary inquiries made by businesses with which you did not apply for credit, inquiries from employers, or your own requests to see your credit report.

Every time your credit is ran/pulled points are deducted from your score. Be very careful not to allow everyone to pull your credit. Be selective. Only apply for "necessary" credit!

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry could take 5 points off their FICO score.

SIDEBAR:

See the example below to better understand how multiple inquiries (pulling the credit too often) may affect a buyer's interest rate:

There are two buyers: Buyer A and Buyer B

Buyer A's credit score is: 620

Buyer B's credit score is: 755

Both buyers are furniture shopping and decide to apply for in-house financing. Buyer A applies and 5 points are deducted from the score. Buyer B applies and 5 points are deducted from the score.

Buyer A now has a 615 score and Buyer B has a 750 score. This application for credit clearly doesn't affect Buyer B with the new score of 750. However, Buyer A now has a 615 and may have just lowered themselves into a bracket with higher interest rates.

One point can make a difference for some. On a lot of academic grading scales a 79% is considered a C+ and a 80% is a B-. But, on the report card you ONLY see either a grade of a C or B. The difference between the two grades is only by 1%, but a B is better than a letter grade of C. Which would you rather have? This one percentage point placed the 80% into the B grade category. Which is what happens with credit scores.

If your credit is in the mid to lower 600's please don't apply for ANY TYPE of credit until you have been approved for your mortgage loan and have "closed" on your new home. Inquiries can have a greater impact, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. You don't want unnecessary inquiries affecting your credit scores.

WHAT HAPPENS WHEN YOU APPLY FOR CREDIT?
When you apply for credit, you authorize the lender to ask for a copy of your credit report. This is how voluntary inquiries appear on your credit report. The credit inquiries section of your credit report contains a list of everyone who accessed your credit report within the last two years. The report you see lists both voluntary inquiries, spurred by your own requests for credit, and involuntary inquiries, such as when lenders order your credit report to offer you a pre-approved credit card.

WILL MY FICO SCORE DROP IF I APPLY FOR NEW CREDIT?
If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple credit inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

WHAT TO KNOW ABOUT "RATE SHOPPING."
Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one credit inquiry. In addition, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 14 days, the inquiries won't affect your score while you're rate shopping.

IMPROVING YOUR FICO SCORE. If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Generally, people with high FICO scores consistently:

Pay bills on time.
Keep balances low on credit cards and other revolving credit products.
Apply for and open new credit accounts only as needed.

Also, here are some good credit management practices that can help to raise your FICO score over time.

Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your FICO score over the long term. If your strategy is to re-establish your credit do your research before applying for credit cards. We've found a great site that will help you choose the right credit card and get you back on track. Visit

Credit Card Comparisons.

Check your own credit reports regularly, and before applying for new credit, to be sure they are accurate and up-to-date annual credit report.

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