Credit Inquiries – 10% of Your Credit Score – Episode #85

Inquiries and Credit Scores.

Inquiries do impact credit scores, but not nearly as much in relationship to the amount of media attention they get.  It seems where ever I look, I see a blog post about credit inquiries saying “you’ll get dinged” or my personal favorite credit myth “checking your own credit score hurts you”.

First off, let’s define an inquiry.  There are two types of inquiries:  soft inquiries and hard inquiries

• Soft inquiries are when you pull your own credit or when your credit is pulled for a non credit/lending related decision.  Examples: getting your score on any of the consumer credit score websites or an employer pulling your credit
• Hard inquiries are when a lender checks your score for an application of credit.
• Both types are listed on your credit report

Hard credit inquiries impact your credit score because a bunch of smart math doctorates figured out that applying for a lot of loans was correlated with higher risk.  This rule was put in place back before the internet, so the folks at Fair Isaac had to come up with a nice caveat for online loan shopping.

• Any mortgage loan credit inquiries in a 30 day period are counted as 1 credit inquiry [this varies slightly by FICO software version, some allow for 45 day windows].  Sadly, auto loans don’t have a similar feature, nor do personal loans.

At 10% of your credit score, sure, inquiries are important.   But, timing is the key issue, hence, I like this golden rule:

• Don’t apply for new credit cards or a new cell phone a couple months before you plan to get a home loan.