How Do Inquiries Affect Your Credit Report?

Whenever a party obtains a copy of your credit report, the party's name is listed as having made an inquiry into your credit. This inquiry shows up on your credit report for any party that pulls your report in the future. In addition, some types of inquiries affect your FICO credit score.

Types of Inquiries

Credit inquiries can be divided into two major types. Hard inquiries are made by creditors in response to your application for credit. For example, if you apply for a mortgage at a credit union, the credit union's name will show up on your credit report as a hard inquiry. Soft inquiries include when you check your own credit, when companies check your credit to send unsolicited pre-screened credit offers and when a landlord, phone company or similar party checks your credit. Although both types of inquiries appear on your credit report, only hard inquiries affect your credit score.

Effects of Inquiries

Hard inquiries reduce your credit score. This is because FICO statistics show that people who have at least six inquiries are eight times more likely to go bankrupt than people without any inquiries. The logic is that people who are applying for new credit are more likely to be in financial trouble than people who are not applying for new credit. According to FICO, one inquiry reduces the average person's credit score by less than five points. However, people who do not have much credit history could see a greater impact from each inquiry.

Rate Shopping

The credit scoring formula compensates for the fact that people who are looking for a loan often generate many credit inquiries by getting rate quotes from multiple lenders. The newest scoring model FICO uses treats multiple credit inquiries for a mortgage, auto or student loan as just one inquiry if they are all made within a 45-day period. The older FICO scoring model limits the time period to just 14 days. To be safe, people should do all rate shopping for a specific loan within two weeks to avoid damaging their credit score with more than one inquiry.

Time Frame

Inquiries appear on your credit report for two years following the date of the credit inquiry. However, the formula that FICO uses to calculate your credit score only takes into account hard inquiries made during the past 12 months. In addition, the more recent the inquiry, the more it will affect your credit score. The exception is that, when shopping for a mortgage, auto loan or student loan, the credit score calculation ignores all inquiries made on the same type of loan within the past 30 days.