When you apply for credit, you allow lenders to request a duplicate of your credit report from a credit bureau.
Every time a lender accesses your credit file, they leave an inquiry as evidence of your application with them.
When you check your credit report, you will find a part entitled Credit Inquiries or Regular Inquiries.
They can stay on the report up to 2 years.
There are hard and soft inquiries, which affect your score differently.
The number and rate of inquiries within a 2-3-year period can have a huge negative effect on your credit history.
Types of Credit Inquiries
A hard inquiry is noted on an individual’s credit report when a third party sights the report after a credit application.
These inquiries will reduce your score by 5 – 10 points.
A soft inquiry is usually instigated by the individual to check for errors.
You need to order your report through an authorized organization such as my FICO to avoid the inquiry affecting your credit score.
Also, existing creditors may request a report.
Other circumstances soft inquiries might be initiated:
- Insurance Companies or prospective landlords to assess risk.
- Future employers doing background checks.
- Credit Card Companies before sending approved promotional offers.
Fair Isaac Corporation instigated FICO scores over 25 years ago.
90% of the best lenders use these scores to assist them in making billions of credit related choices every year.
They are regularly apprised to indicate changes in lending practices and consumer behavior.
The score is devised using multiple scorecards.
Each card is modified to assess risk for a precise customer segment.
What Effect Does an Inquiry Have on Your Score?
Usually, credit inquiries have minimal impact on your FICO scores.
For the majority of people, one additional credit inquiry will mean that less than five points is taken off their score.
The total range for FIFCO scores is 300 – 850.
Inquiries will have a greater effect if you have a short credit history or few accounts.
There will be an increased risk from a large number of queries.
Research has indicated that people with 6 or more inquiries on their credit reports could be up to 8 times more likely to file for bankruptcy.
This is compared to those with no inquiries.
If you have numerous inquiries on your credit file, lenders will perceive you as a high risk borrower.
There is a concern that other borrowers have declined you for reasons of which they are not aware.
If you are looking for a student, mortgage, or auto loan, numerous lenders may request your credit report.
You may only be looking for one loan, but there could be multiple inquiries.
To counterbalance this, FICO scores disregard the number of loan inquiries made in the 30 days before scoring.
They consider this rate shopping, so the number of inquiries made during this time will not influence your score.
FICO Scores also examine your credit report for student, mortgage, and auto loan inquiries older than 30 days.
If some are found, your score will reflect inquiries that fall in an average shopping period as just one inquiry.
For FICO scores determined from the newest descriptions of the scoring method, this shopping phase is any 45 day duration.
Those learned from older versions means the shopping phase is any 14 day period.
Each lender selects a version of the FICO scoring procedure which the credit reporting agency will use to estimate your score.
How to Avoid Unwarranted Credit Inquiries
Unlike judgments or defaults, excessive credit inquiries can be avoided by:
- Making it clear that you will not sanction access to your credit file until you agree to the terms and conditions. Creditors have left inquiry “footprints” without the knowledge of the applicant.
- Reading the terms and conditions online before providing personal details. If accessing your credit file during the review stage is included find another credit provider.
- Being aware as a director or business owner that creditors can record credit inquiries on both your commercial and personal credit file history.
Disputing an Unauthorized Inquiry
The Fair Trading Reporting Act Section 64 states that a creditor needs written permission from the consumer to access credit information.
The exception is a court-ordered access or a request by a state or local government agency concerning child support.
You can challenge the inquiry with the credit bureau.
Do this by asking for the removal of the investigation stating that it is unauthorized and the creditor did not have permission.
Challenging an investigation through the credit bureau will result in a fraud alert being enforced on your credit.
This lasts for 90 days and informs lenders they must confirm your identity before allotting any credit.
You need to be ready for requests for hard copies of your personal information when looking for credit approval.
It will be challenging to dispute an inquiry, but there are professional credit restoration services that can help you.
You need to be aware that under the Fair Credit Reporting Act (FCRA) businesses other than prospective creditors with permission can legitimately access your credit file.
- Debt Collectors – they can utilize your credit report to obtain personal information.
- Insurance providers – some use your credit score to determine the prospect of a claim being filed.
- Current and Prospective Employers – they may check your credit report before offering you certain positions such as upper-level management and financial positions.
- Government Agencies – they may check your credit report before providing certain licenses.
Companies accessing credit files under false deceptions or for illegal usage are in violation of Federal law.
Reasons to Check Your Credit Report
Potential lenders will check your credit report as it shows how you handle credit.
So what good reasons are there for you to check your credit report?
- You’re getting ready to buy a house or a car.
Your credit score will determine your interest rate, so fix any errors you find a year before you intend to apply.
- You’re planning to rent a new apartment.
Many property management companies and landlords conduct credit checks. A low score could diminish your chances of getting the apartment because there may be a concern that you won’t pay the rent at all. Or, you might have to pay a higher security deposit.
- You’re deciding to make a major purchase.
You may need your credit card issuer to increase your credit limit. A report showing delinquent accounts or missed payments means you might not get your request.
- You’re looking for a new job.
According to the Society for Human Resource Management, almost a third of American employers carry out credit checks on some candidates. This applies particularly to jobs that involve handling money or require a special security clearance. Credit issues could raise doubts about your suitability for the position.
- You’re planning to refinance.
Are you trying to refinance your loan at a reduced interest rate? Inaccuracies or high balances might give the lender a reason to deny your refinance request.
- You’ve noticed something suspicious.
You may have received a notice from the IRS that doesn’t apply to you, a collection call for another person, or details about a credit card you didn’t open. Checking your report will reveal any fraudulent activity.
- You haven’t checked for a while.
You are eligible to receive a free copy once a year from the three major credit reporting bureaus – TransUnion, Experian, and Equifax. It makes sense to keep checking your credit even if you are not planning to borrow money. Fixing inaccurate information or fraudulent accounts can be time consuming. It makes sense to start the process sooner, rather than miss out on a job opportunity or new apartment.
Your credit report will influence your financial affairs and lifestyle.
Credit inquiries from prospective lenders will have a detrimental effect on your score.
These are hard inquiries and lenders will require written permission to access your credit file.
It is advisable to check the terms and conditions before giving permission.
The law also allows other establishments with legitimate reasons to access your file.
Numerous inquiries may label you as a high risk candidate for future loans.
It could be you have too much debt, or you are in financial difficulties and looking for credit to assist you.
It is advisable to regularly check your credit report for fraudulent accounts or false information so you can ensure it’s in the best possible standing.