Why Does a FICO Score Go Down With Each Credit Check?

Whether or not a lender approves you for a loan, applying for credit lowers your credit score. This is not done to prevent people from searching for credit, but because of data that suggests bad borrowers tend to apply for credit. It is possible to get credit and sidestep the application, but you will need someone trusted to help you.

Identification

The Fair Isaac Corp. is the preeminent researcher of borrowing habits, and the company's FICO scoring system is the most widely used in the U.S. Fair Isaac's data finds that a borrower with six or more credit inquiries on his report is eight times more likely to declare bankruptcy than a borrower with no inquiries. A single inquiry, however, only does one to five points of damage, so it basically has no effect until you apply for a lot of loans.

Not All Credit Checks are the Same

Not all credit inquiries damage your score -- only those associated with a desire to get more credit. When a credit card company pulls your report without a request from you, this does not hurt your score and is known as a "soft inquiry." Other soft inquiries might come from an employment background search or insurers.

Rate Shopping

Hard inquiries do not always count against your score. FICO recognizes that some loans are highly likely to require several application to get the best rate, also called rate shopping. Borrowers have a 45-day window to put in an as many applications as they want and have them all count as a single inquiry. Student loans, mortgages and auto loans are usually the only type of credit to get this treatment. Also, inquiries only count against your score for 12 months after they hit your report.

Tip

Not all lenders use the most updated FICO formula. Older FICO models only give a 14-day rate shopping window, so put all of your applications in as soon as possible. You can get credit and avoid the hit from a credit inquiry if someone is willing to list you as a joint account holder or co-signer. Keep in mind that if the primary account owner defaults on his payments, you also have that bad credit on your record.