Why Does a Credit Score Go Down When Credit Inquiries Are Made?

Your credit score fluctuates based on your credit reports, which change as you apply for new accounts, get loans, make credit card charges and send in payments. All of this data gets plugged in the scoring formula, and credit inquiries influence 10 percent of the resulting number, hurting you if you have too many.

Definition

Credit inquiries are checks of your Experian, Equifax and TransUnion credit reports. You give permission for inquiries when you fill out credit applications, and lenders review your reports to help them decide if you are creditworthy. Credit checks based on applications are "hard pulls," the Lendingtree loan website explains. "Soft pulls" are another inquiry type resulting from marketers pre-screening you for potential offers or your own self credit checks.

Effects

Hard credit inquiries result in credit score drops, although the damage is minor if you only have one or two checks within six months to a year. A single inquiry reduces your score by up to five points, the MyFICO scoring site advises. Many credit checks within a short time period are damaging because lenders worry you might open too many accounts and default on the bills. MyFICO warns that your bankruptcy risk is eight times greater if you have six or more inquiries on your records within a few months. Soft pulls have no effect at all; they are unrelated to opening new accounts.

Considerations

Lenders know that you are not always trying to open multiple accounts when you have numerous inquiries within a short period. You get a number of hard pulls when you shop around for a good interest rate on a large loan like car financing or a mortgage. Credit scoring formulas lump together all similar inquiries made within 30 days, according to MyFICO. They drop your score a little, but no more than a single hard pull.

Monitoring

You can monitor the number of inquiries in your credit bureau records by ordering free report copies from AnnualCreditReport.com. This website is the official source of no-cost reports, which you can obtain every 12 months, according to the Federal Trade Commission. Check the number of hard pulls before you apply for new credit, and delay your application if you have too many recent inquiries. Your score in unaffected by credit pulls older than 12 months.

Removal

Challenge any unrecognized credit inquiries because the companies that made them must produce proof of your authorization or remove the entries from your credit reports, according to the Illinois Attorney General's website. Write directly to the companies that made their inquiries using the information on your credit reports. Your credit score improves if any of the inquiries are erased.