Most people don't know how credit inquiries can affect their credit report. There are a lot of rumors and myths floating around about the impact of inquiries. Sometimes an inquiry can have an affect and other times there is no affect or its very minimal or limited. Whenever someone takes a look at your credit report an inquiry appears. You can identify which creditors looked at your report if you can decipher their inquiries.
Ordering Your Report
There is a myth going around that says looking at your own credit report counts as an inquiry and will lower your credit score. This is a false assumption. If you order your credit report from one of the three credit reporting agencies, you will receive an inquiry on your report but it has no impact whatsoever. Now, on the other hand, if you worked in a credit office and you pulled your own credit report the same way you would any other consumer, for credit processing, it would show up as a regular inquiry and there could be an effect on your credit score.
Number of Inquiries
Many consumers believe that if you receive a lot of inquiries, it can damage your credit score. This can be true in some cases, but if you receive a number of inquiries from a mortgage company within 30 days of the computation of your credit score, they will not count against you. If you receive your loan within the 30 days of the inquiries, they will have no affect. All inquiries made after 30 days but within a 45 day window--or the shopping period--will only count as one inquiry under the new credit scoring model. This feature helps when you are looking at a number of mortgage companies prior to receiving a loan. If you are shopping for a car loan, this concept also applies.
Hard and Soft Inquiries
It is a common mistake to believe that prescreened credit card offers will lower your credit score. These are considered soft inquiries since you are not making a request for credit. In fact, you did not initiate the offer at all. These will not affect your credit file. This holds true for all soft inquiries. The credit reporting agencies sell your data to financial institutions, which in turn send out these preapproved offers. Hard inquiries are when you apply for credit and creditors look at your credit file.
Time Frame
A lot of people think inquiries will have a long-term effect on their credit score. Actually credit inquiries stay on your credit report for a period of two years. As time passes, even though the inquiry is still on your credit file, they begin to have less and less of an impact on your credit score. Other strong categories on your credit file, such as paying on time and reducing your credit card balance, will help to offset the effect of inquiries.
Impact
Most people think inquiries have a major impact on their credit score. Actually one inquiry reduces the credit score, for the average consumer, by five points. Credit scores range from 300 to 850; therefore, if you have a score of 770, five points will not be significant.
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