Your credit score is one of the most important numbers in your life. It’s a reflection of your creditworthiness and is based solely on information that’s in your credit report. Your credit score is calculated using five different criteria: your payment history, level of debt, credit age, mix of credit, and credit inquiries.
Hard vs. Soft Inquiries
Credit inquiries are placed on your credit report whenever a business pulls your credit report. Sometimes this happens when you make an application. These are known as “hard” inquiries. Other times it happens when a business wants to promote products or services to you. These are called “soft” inquiries. Your own requests for your credit report are also soft inquiries.
Soft inquiries don’t affect your credit score. However, those hard inquiries made when you put in applications do affect your credit score. Credit scoring researchers have found that borrowers who have a lot of credit inquiries within a short period of time are more likely to default on their accounts.
How Much Will an Inquiry Affect Your Score
Just how much your credit will be affected by credit inquiries depends on your current credit score and the other information in your credit report. Generally, you can expect inquiries to only have a small impact on your credit score since they only accounts for 10% of your credit score. According to FICO, developers of the FICO score, an additional credit inquiry will likely take a maximum of five points from your credit score. You’ll receive greater damage to your credit score if you only have a few accounts on your credit report or if your credit history is short.
Credit Inquiries and Rate Shopping
Some credit scoring calculations won’t penalize you for rate shopping, as long as you do your shopping within a certain period of time, typically 30 days. (Note: some credit scoring models have a 14-day window while others have a 45-day window.) All inquiries made within that 30-day window will be treated as a single inquiry and your credit score won’t be affected during that time. After you’re done rate shopping, those multiple inquiries will be treated as a single inquiry rather than several separate ones.
Credit Inquiry Time Limits
Fortunately, credit inquiries only remain on your credit report for 24 months. Even better, only those inquiries made within the past 12 months are included in your credit score. As inquiries pass that one year mark, they no longer affect your credit score.
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Comment by mbt tataga — July 10, 2010 @ 10:51 pm
I work for a mortgage credit reporting agency; the 30-45 day time window where ‘all inquiries are treated as one’ is true for only for certain types of inquiries — mortgage and in some cases auto finance. To my knowledge, these inquiries remain on your credit file, they just are factored as ‘one’ when used in the scoring model.
Also, the main reason I’m writing this post:
If you are getting a home loan, please be aware that credit inquiries will be investigated by your lender, in their effort to search for new credit lines/liabilities (a new credit card, a furniture purchase, a Macy’s card, etc.) — lenders are investigating inquiries because of new Fannie Mae Loan Quality Initiative requirements that went into effect July 1st 2010 — if you want to know the details you can find more information through Google (most of it will sounds like lender mumbo-jumbo) — the main point: once you apply for a mortgage and are approved, be VERY CAREFUL when considering acquiring NEW credit of any kind (or running up your balances on current credit), the lender will be researching changes like this, and the new activity could delay or endanger your loan transaction in a major way!
Lastly, to all consumers: please be aware the ‘FICO score’ you receive from annualcreditreport.com (the *only* government sponsored ‘free credit score’ site) or that you receive directly from the three major bureaus by purchasing your credit report, is NOT the FICO score used by your mortgage lenders. ‘FICO’ is a generic terms for a classification of score models, and to my knowledge the actual mortgage FICO score is difficult to obtain as a consumer.
Be very wary of ‘credit repair’ companies — ‘repairing’ your credit takes time, and while fixing and eliminating errors can be legitimate, make sure to speak with your mortgage professional about any credit repair plans you undertake.
I have not reviewed this site and I don’t mean to either endorse it or ‘dis-endorse’ it; I found it randomly while conducting research.
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