Inquiries on your credit report – What is the real story?

Minneapolis, MN:  As a Mortgage Loan Officer, I’ve pulled and reviewed a lot of credit reports in my day.  I’ve also spent an incredible amount of time debunking the irrational fear so many people have about inquiries on your credit report.

This one sentence is all most people need to know.

STOP worrying about it.

For the vast majority of the people, the vast majority of the time, you should never ever give a second thought to an inquiry on your credit report. It just isn’t what people think.

Credit score factors

So What Is A Credit Inquiry?

Whenever you apply for credit, a credit report is reviewed, and a notation that a creditor reviewed your credit file is added to your report. This is known as a hard inquiry.

A soft inquiry has no effect on anything, and is when creditor review your credit so they can offer things like pre-approved credit cards, or when you review your own credit report.

Where all the fear comes from, is that it is true that inquiries may have the potential to impact your credit score.  MAY HAVE and POTENTIAL and important words.

Do Inquiries Hurt My Credit Score

Maybe, but doubtful in any measurable manor most of the time.

Everyone needs to have credit reviewed. Doing so really doesn’t mean anything to your credit score. It is only when you have a large number of inquiries in a very short period of time that might have a small impact.

Credit scoring models see it as a sign of higher risk when someone applies for a lot of credit in a relatively short window of time. Statistics show a lot of inquiries may show that someone is having financial difficulties.

The scoring models also understand sometimes people have multiple inquiries simply because they are shopping for a loan. This is especially true for car loans and home mortgage loans.

For example, all mortgage loan inquiries in a 30-day window only count as one.

Inquiry Effect Different People Differently

Someone with a 820 credit score and maybe five inquiries in the past 90-days might only see a 5 point temporary drop, but someone with a 641 score to begin with might see a larger drop.

If you temporarily drop from 820 to 810… who cares, you have awesome credit! On the other hand, if you dropped from 641 to 631, this may result in a loan denial, as you were already on really shaky ground, and now went below a minimum score requirement.

Then, as the inquiries age past generally 120 days, the effect on your score goes away. IT’S ONLY TEMPORARY!

Credit Inquiries – The Bottom Line

If you need to apply for credit, apply for credit, and don’t worry about it. On the other hand, probably not a wise idea to accept every Department Store at the malls offer for a credit card at the register when Christmas shopping if you will be looking for make a large purchase in the next few months.

If you think you will be applying for a large loan, like a car or mortgage loan, try to limit the number of hard inquiries in the proceeding 90-days.

Yes, a lot of inquiries in the past 90-days may have a very minor 10 point or so effect temporarily on your credit score, but one 30-day late payment,  and max’d out credit card balances will kill your score.

Relax… Be smart, and for 99% of people 99% of the time – don’t worry about inquiries.