Part of your credit score – 10% to be exact – considers the number of inquiries made for your credit report. Credit inquiries are placed on your credit report each time a business requests a copy of your report.
The Fair Credit Reporting Act (FCRA) requires businesses to have an acceptable reason for accessing your credit report. Acceptable reasons include:
- To grant credit
- Collect a debt
- Underwrite insurance
- License issuing by some government agencies
- Legitimate business transactions
Companies who obtain your credit report under false pretenses or those who use it improperly violate federal law.
Two Types of Credit Inquiries
Not all inquiries that appear on your credit report affect your credit score. Inquiries that are made because of an application you made for credit are the ones that affect your score. These voluntary, or "hard", inquiries are the only credit inquiries that count towards your credit score.
When you review your credit report, you might notice that several inquiries appear from businesses to which you didn’t apply for credit. Other businesses might check your credit report because they want to offer goods and services to you. For example, creditors who send “pre-approved” credit card offers have often checked your credit report first.
Credit inquiries are also made by potential employers, businesses that you already have credit with, and yourself. None of these "soft" inquiries count towards your credit score.
Your version of your credit report includes all inquiries. When lenders and creditors look at your credit report, only the voluntary inquiries appear.
How Inquiries Affect Your Score
Inquiries on your credit report can indicate your risk as a borrower. Too many inquiries might mean that you’re taking on too much debt or that you’re in some kind of financial trouble and are looking for credit to help you out. Several inquiries can reduce your credit score.
Depending on how much information you have in your credit report, an additional inquiry might not affect your credit score at all. On the other hand, if you have a short credit history without a lot of accounts, an additional inquiry could cause your score to drop by a few points.
Credit report inquiries will remain on your report for two years, but only those made within the last year are included in your credit score calculation. The most recent inquiries have the most effect on your score.
Inquiries And Rate Shopping
When you’re shopping around for mortgage and auto loans, you want to get the best rate – and you should. You might worry that having your credit checked by several lenders could hurt your credit score.
The good news is that most credit score calculations treat all mortgage and auto inquiries as a single inquiry, as long as the inquiries are made within a certain period of time. For the latest version of the FICO score, this period is 45 days.