"Inquiry" is the term used by the credit industry to describe what happens when businesses request copies of your credit history.  Certain inquiries may lower your credit scores while others are completely harmless!

Businesses, with a permissible purpose, can request a copy of your personal credit history, and whenever they do, these inquiries will appear on your credit reports and may remain there for up to two years.

Soft Inquiries are classified as ...

Promotional: Your name and address were provided to a person or creditor who then gave you a firm offer of credit or insurance. Promotional inquiries ordinarily remain on your credit profile for 12 months.

Account Monitoring / Review: This is a periodic review of your account by one of your existing creditors. This type of inquiry is usually pre-authorized by you when signing credit contracts. See your credit disclosure statement for more information. Account monitoring or review inquiries usually remain on your credit profile for 12 months.

Employment: These inquiries are the result of your application for employment and DO NOT count against your credit score. Employment inquiries generally remain on your credit profile for 12 months.

Internal Inquiries: These inquiries are the result of your contact with the credit reporting agency. You either requested a copy of your report or requested an investigation into an item being reported. Internal inquiries often remain on your credit profile for 24 months.

A large number of inquiries essentially mean greater risk to any potential credit guarantor. According to myFICO.com, people who have SIX or more inquiries on their credit reports are EIGHT times more likely to declare bankruptcy than those with no inquiries on their reports.

Can "shopping" for credit hurt my credit score?

Yes, but not all inquiries will have the same affect.  A good rule of thumb for inquiries is that you will lose 5 points per inquiry from each of your three credit scores.  The impact is seldom uniform when you take into consideration the day-to-day "background noise" in each of your credit scores.  (Credit scores may move upward or downward a few points every day.)

Shopping for a mortgage within a 14-day period is often counted as a single inquiry and should have little impact on your credit score. It is essential, to ask any mortgage broker whether they intend to use a single copy of your tri-merged credit report (pulled in their name) to shop rates or programs across a number of banking institutions -- or if several credit pulls will be necessary.

It is customary, at the Specialty Lending Division, to pull credit only once in order to shop their 120 lending partners.  This enables them to shop a maximum number of lenders without risking damage to your credit scores.  Some brokers, Internet lenders, and "lead generating websites" (such as Lending Tree), may cause your credit to be pulled many times by many different lenders (you agreed to that in the fine print).  A significant number of credit pulls, particularly any that may fall outside the initial 14-day window, could cause your final loan qualification to be a big disappointment.

Shopping for an vehicle loan is another story.  The window is tight (3 days), and may encounter devastating consequences.  You must be exceptionally careful when rate shopping through most auto dealerships.  For example, each dealer may submit your credit application to Dealer Track, an automated rate shopping system that is connected to 160 lenders.  It is entirely possible that your "shopping" will effectively result in dozens of credit pulls from each dealer you visit.  This could reduce your credit scores by 50 to 100+ points over a few days time.  The end result is that you could "shop" your way into an unfavorable interest rate -- the exact opposite of what you may have had in mind.  To reverse the damage caused by an excessive number of inquiries, the inquiries can be integrated or reduced to a scant few by trained professionals.

NEVER shop for a vehicle loan before applying for a mortgage.  The result could be very costly!  A higher interest rate on a vehicle loan could cost a could a thousand dollars in additional interest, but a high interest rate on your mortgage (or inferior terms) could cost you tens of thousands.  Worse yet, you may not even qualify for the mortgage!

Keep in mind that other credit inquiries such as credit cards, personal loans, and insurance count separately and each credit pull most certainly will affect your credit scores!  Too many recent inquiries indicate to your potential credit grantors that your debt-to-income ratio may be much higher than you claim.

This is contrary to information published by the major credit reporting agencies, which have a penchant for stretching the truth.  Correction: They repeatedly lie through their teeth in public! 

What about unauthorized Inquiries?  And how do I get rid of them?

If you discover unauthorized inquiries on your credit report, it may be time to place a few inquiries of your own.  Always check your credit report against each of the major credit reporting agencies.

If after checking your credit reports closely, you discover any unauthorized inquires, we suggest that you send a "please remove your inquiry" letter to each creditor that performed the unauthorized inquiry.  Here is a sample "remove your inquiry" letter to use as a model.

If the creditor fails to respond to your request to remove the unauthorized inquiry, send a letter directly to the credit reporting agencies, and request that they delete the unauthorized inquiries from your credit profile.  Here is a sample remove unauthorized inquiry letter to use as a model for your personalized letter.

How are inquiries factored into my credit scores?

Inquiries may or may not affect your credit scores.  The scoring models each take into account only voluntary inquiries that result from your application for new credit.  Other relevant information that is factored into your credit scores include:

• The number of recently opened accounts.
• The proportion of recently opened accounts in use, according to the account type.
• The time since recent accounts have been opened, by account type.
• The overall number of recent credit inquiries.
• The time since the most recent credit inquiries had been made.

If anyone tries to tell you any different, they have absolutely no idea of how the scoring algorithms actually work!

 

What if my credit history lacks depth?

People with shallow credit (relatively short credit histories) are likely to be punished more severely for their voluntary inquiries.  Involuntary inquiries have no affect, regardless of the length of your credit history.

Actually any potentially adverse change in credit scoring will impact more severely anyone with a shallow credit history.  Inquiries are unlikely to be damaging to someone with a long history of timely payments.  Such is the schizophrenic nature of credit scoring algorithms.

Generally speaking, people with high credit scores will consistently:

• Pay their bills on time.
• Maintain low balances on their credit cards or other revolving credit lines.
• Open new credit accounts only as needed.

Here are a few good credit management practices that can help improve your credit score:

• Re-establish your credit history whenever you experience problems. Opening new accounts, maintaining low credit balances, and paying your bills on time will raise your scores over time.
• Check your credit report annually.  Before applying for new credit, be certain that your report is accurate and up-to-date.
• When you order your credit reports directly from the major credit bureaus, your personal inquiries will never adversely affect your credit scores.