There is often confusion and panic about INQUIRIES ON CREDIT REPORTS. There are two types of inquiries –hard inquiries that can impact your credit score, normally a few points, and soft inquiries that do not impact your score. Inquiries remain on your reports for two years and as time passes the impact decreases, usually disappearing long before it falls off the report. Creditors can only view hard inquiries.
Auto, mortgage and student loans fall under the hard inquiry category. Multiple inquiries done within a short period of time constitute only one inquiry, because they are for one type of loan and this is considered ‘rate-shopping’ for one new account. Inquiries for credit cards or lines of credit lower scores more than ‘rate-shopping’ inquiries.
Inquiries shared only with you and do not impact your score; also called soft inquiries:
- Checking your own credit report information and/or scores
- Pre-approved credit card and loan offers (you can opt out of preapproved offers)
- Business with whom you already have a credit account
- Employment and insurance credit review
Some inquiries indicate you may be taking on additional financial obligations and that could be meaningful to your risk of being able to repay other debts, so these might incur a hard inquiry. Ask the entity requesting your information to distinguish which type it will constitute:
- Rental or lease application
- Renting a car
- Cell phone, cable TV, internet, and utility service agreements
- Opening a checking, savings or money market account
- Requesting a credit limit increase (however, if limit is increased the lowered utilization rate will reduce impact of the inquiry.)
Hard inquiries should be limited as much as possible. Your credit score may be penalized for multiple hard inquiries, because applying for too much credit at one time may indicate that you are desperate for credit, or that you aren’t able to qualify for credit. While one hard inquiry will usually cost your credit score just a few points, multiple hard inquiries may cause significant damage to your score.