Inquiries and Your Credit Scores
Is it true that my credit scores will drop every time my credit reports are pulled? What exactly is an “inquiry” anyway? Does it hurt when I check my own credit?
Consumers have a lot of questions when it comes to inquiries and how those inquiries affect their credit scores. In fact, inquiries are one of the most misunderstood subjects in the world of credit due in large part to the many myths routinely spread regarding the topic. So the next time you read anything having to do with inquiries, keep the following in mind…
Credit Inquiry Defined
A credit inquiry occurs whenever someone/anyone accesses your credit reports. Thanks to the Fair Credit Reporting Act (FCRA) the credit bureaus are not allowed to share your credit reports except for under a limited number of scenarios. When they do share your credit reports, the event is documented by them placing an inquiry on your credit report. Inquiries are simply the name of the company that accessed your credit reports and the date on which the access occurred. Nothing more, nothing less.
Because inquiries can be a reliable indicator of credit risk, credit scoring models have been designed to consider the number of inquiries appearing on your credit reports when calculating credit scores. Not all inquiries will harm your credit scores, that is a myth, but some do have the ability to impact your credit scores in a negative manner.
Types of Inquiries
Inquiries are generally divided into 2 separate types. The 2 different types of inquiries are referred to as “soft” and “hard.”
Hard Inquiries
Hard inquiries are the type of inquiry which may potentially have a negative impact on your credit scores. They generally occur whenever you apply for a new credit account (though there are some exceptions to this rule).
Every hard inquiry does not automatically harm your credit scores. That is another stubbornly persistent credit myth. Additionally, even if a hard inquiry does negatively impact your credit scores it will only be able to do so for up to 12 months before it stops being considered.
Of course, even in 12 months during which inquiries may be counted, they typically have only a slight credit score impact. In FICO’s credit scoring models inquiries only influence 10% of your credit scores and they are among the least important factors considered by VantageScore’s models as well.
A few examples of hard inquiries include the following:
- Loan Applications (Mortgage, Auto, Personal, Student, etc.)
- Credit Card Applications
- Refinance applications
Soft Inquiries
Soft inquiries never impact credit scores, ever. They are considered off limits by credit scoring models. In fact, they are off limits to lenders as well. If a lender pulls a copy of your credit reports your soft inquiries will not be displayed.
A few examples of soft inquiries include the following:
- Checking Your Own Credit Reports
- Lenders Sending “Pre-approved” Offers of Credit
- Account Management Credit Checks (Your Existing Creditors)
- Insurance Credit Checks
- Employment Credit Reviews
As you can see above, it is considered a soft inquiry whenever you pull a copy of your own reports. The myth that checking your own credit reports may harm your credit scores is perhaps one of the most frustrating myths in existence. This myth unfortunately makes many consumers feel afraid to check their credit reports when in reality you should be checking your credit reports for accuracy on a consistent basis.
Managing Inquiries
Now that you know which inquiries may harm your credit scores and which inquiries are completely benign you can better manage how and when you allow your credit reports to be pulled. You should never be afraid to check your own credit reports. You do not have to worry about losing points if an employer wants to review your credit. You won’t lose points if a utility company pulls your credit reports. However, you should probably consider limiting how often you allow lenders to access your credit information as a general rule of thumb.