What Everyone Should Know About Credit Inquiries

By: Peter Kenny

Ten percent of your credit score comes from applications that are made to your credit report. Every time a creditor or a lender reviews your credit report to determine whether or not to loan you money an additional inquiry is placed on your report.

If you've checked your credit report lately, you may have noticed that there are a few inquiries from businesses you might not be familiar with. Not all of these inquiries have an effect on your score.

The inquiries that are included in your score are those from your own applications for loans. When you apply for a credit card, an auto loan, or mortgage, you have given the lender permission to review your credit report. This action is considered a voluntary inquiry on your report. Those inquiries are initiated by you by applying for a loan are the inquiries that have an affect your score.

Other inquiries that you may notice on your report do not count towards your credit score. These inquiries include those made by potential employers, businesses that you already have credit with, businesses intending to offer goods or services to you, and your own personal requests for reports. Even though these inquiries do appear on your copy of the credit report they aren't included in the calculation of your score. If an inquiry on your report is not the result of an application made by you, then it probably won't be included in your score.

Shopping around for the best mortgage rates or auto loan rates doesn't hurt your score, if the shopping is done within 45 days. All mortgage and auto loans made within a certain timeframe are treated as a single entry by the algorithm used to calculate your score. Be aware that some creditors might choose to use an older version of the credit score calculation that changes the shopping span to 14 days.

Depending on what information already appears in your report, your score might not lower at all when you make an application for new credit. If you have a longer credit history and hold more accounts, your credit score usually won't decrease all because of a new application. If it does decrease, it won't be by more than a few points. Additional inquiries have the greatest effect on people with fewer accounts and a short credit history.

Although credit inquiries will remain on your report for 24 months, those made within the past six months have the greatest impact on your score. Keep in mind that since inquiries only count for ten percent of your credit score, your score won't be lowered very much when you make an additional inquiry.

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