When you are reviewing your credit report, you’ll notice that there is a section that lists the different companies or creditors who have performed an ‘inquiry’ on your credit score and report. There are two different types of inquiries and you need to understand how each affects your consumer credit profile.
Differentiating the Inquiry
When you apply for a line of credit or financing, you have given permission to the creditor to inquire about your credit history from one of the three major consumer reporting agencies. Each time you submit a credit or financing application, the creditor who made the inquiry will appear on your credit report. You might also note that there are companies on the report that you are not familiar with.
The companies you don’t recognize are pulling what is called a ‘soft inquiry’. This is when your credit is pulled just to see where you are credit-wise since many of the companies will use this information to solicit new lines of credit to you such as ‘pre-approved’ applications. Soft inquiries also come from your existing creditors who perform regular checks to ensure no financial issues are present. Soft inquiries on your credit report are not supposed to count against you or affect your credit score.
‘Hard inquiries’ are those performed when you actually do fill out and submit an application for credit. It is important to realize that too many hard inquiries can lower your score and make you appear a risk to new creditors reviewing your credit profile. The only time hard inquiries won’t hurt is when you are shopping for new credit or loans within a 30 day time period.
Since consumers should be seeking the best terms and conditions for new loans and credit, these inquiries are ignored. This includes mortgage loans, auto loans, and student loans. Any inquiry completed within a 14 day time period count as only one inquiry on your credit report. This action was taken when consumers who were shopping around to make better lending and credit decisions discovered that by being savvy consumers they were actually harming their own score.
While you don’t have control over the soft inquiries on your report, you do have a say in how many hard inquiries are performed. Applying for too much credit at one time makes you appear to other creditors and lenders as irresponsible with your credit management. There is no set number of how many inquiries it takes to start dropping your credit score but a good rule of thumb is to manage the credit you have and only apply for new credit when necessary.
It is always best to order your free annual copy of your credit report and review the information for accuracy. You may need to check in with your report more regularly than once a year but you should at least do an annual review to ensure the correct information is being reported. Too often consumers suffer much lower credit scores than necessary simply because information is being reported incorrectly.
Any inaccurate information should be disputed directly with the consumer credit reporting bureau which has a duty to investigate the information and make relevant changes if necessary within a 30 day time period. Correcting incorrect credit report information can boost a consumer credit score considerably in an effort to repair credit scores.
Credit reports are much easier to understand these days. It is smart to check in regularly and review what creditors are saying about your credit management skills. Without knowing where you stand credit-wise, you can actually damage your reputation by applying for a new loan or line of credit. Review all of the information contained in your credit report so you can make your credit benefit your financial reputation.