One of the items that is included in your credit report is the section called “Inquiries”.  This section is included in the “New Credit” part of your score, which accounts for 10% of the FICO scores.   

There are two types of Inquiries.

When you check your own credit reports, whether your annual, no-cost ones, or your FICO reports with your actual FICO scores, or some reports you get with a monitoring service you’re enrolled in, FICO says it NEVER counts against the consumer to obtain their own credit reports.  It is a SOFT Inquiry.

Other SOFT Inquiries occur when a company you already have an account with does periodic monitoring of your credit reports, or when a company wants to send you a “pre-approved” offer, or when a prospective employer checks your credit as part of the job application process.  Soft inquiries do not count against your score.

The reason checking your own credit does not count against you is because you are NOT applying for a loan.  Whenever you sign a loan application, or approve one by giving your name, date of birth and social security number, it is considered a HARD Inquiry and will count against your scores.  These hard inquiries stay on your reports for two years and are included in the score for that time.  They can count from 1-12 points each.

NOTE: Try to limit your credit inquiries to less than (6) annually.  According to the FICO company, lots of inquiries means greater risk: people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their report. 

There is some consideration for real estate/mortgage and auto rate shopping.  The FICO scoring formula takes into account that most lenders “shop the loan” to get multiple possibilities for their customer to get qualified.  You can learn more about inquiries and rate shopping here.

NOTE: Even if the lender’s credit report only shows 6 or 12 months worth of inquiries on it, FICO says they stay on for two years and are included in the FICO scoring formula that entire time.  So even if your lender says “don’t worry, it will come off in a month or in 6 months”, that does not necessarily make it so. 

WHAT TO DO
Don’t make excessive loan or credit card applications.

When you do sign an authorization paper for someone to pull your credit, write on that paper that you are only authorizing ONE credit check on that date, and none in the future.  Get a copy of that paper for your records.

When shopping for a mortgage or auto loan, write out that you are authorizing credit checks for a two week period and list those dates.  Example: I authorize ABC company to check my credit report from June 1, 2009 until June 15, 2009 and no other dates.

Dispute unauthorized inquiries with the company reporting them and with the three credit bureaus.

Contact us for individual credit consulting services and to schedule your group presentation for Credit 101.