How Credit Inquiries on Your Credit Report
Affect Your Credit Rating
A credit inquiry is a notation made on your credit report when a business pulls your credit report to review your credit history before granting you credit, a mortgage or auto loan. The number of credit inquiries that appear on your credit report affect your credit score; however, they constitute only a small percentage of your overall FICO credit score. Too many credit inquires on your credit report can lower your score, but usually not significantly. A good estimate is to assume that each credit inquiry will lower your FICO credit score by no more than five points; however, many credit inquiries do not lower your credit score at all.
FICO counts all credit inquiries made by mortgage or auto lenders in any two-week period as one credit inquiry and does not consider any credit inquiries made by mortgage or auto lenders within the previous 30 day period when calculating your score. Therefore, if you are shopping for a mortgage or auto loan and apply for financing with many different companies within a two-week period, all of the inquiries will be counted as one credit inquiry and your FICO credit score would be lowered by about five points at the most, if at all.
One can see how applying for a new credit card every three months could negatively affect the credit inquiry section of your credit report. Statistics show that those who have more than six credit inquiries on their credit reports are much more likely to file for bankruptcy than those who have none; therefore, watch out for the number of credit inquiries and stop applying for credit if you have too many.
If you already have too many credit inquiries just stop applying for credit for awhile. Credit inquiries do not remain on your credit report forever, only up to two years and then they must be removed as required by federal law. But more importantly, only credit inquiries made within the last twelve month period are used in calculating your FICO credit score. Also, note that pulling your own credit report does not count as a credit inquiry; neither does it count when a prospective employer pulls your credit report to make a hiring decision or when a current creditor looks at your credit report.
Finally, don't assume that having zero credit inquiries on your credit report is a good thing. For people who have established credit histories and a good mix of credit (mortgages, auto loans, credit cards), it is a good thing. For those who haven't used credit at all or have a short credit history, having zero credit inquiries could lower your credit score. By the way, the average consumer has only one credit inquiry on his credit report and about 5% of consumers have more than four credit inquiries on their credit reports.