Inquiries can be quite a dilemma! They are surrounded by confusion and questions: How much do they affect your credit score? What inquiries do and don’t affect your scores? What about rate shopping? What’s the difference between a hard and a soft inquiry? Inquiries can be frustrating because they may have an impact on your credit score depending on the type of inquiry performed.
How much an inquiry affects your score really depends on the rest of your credit report. If you have good credit, few inquiries and a good payment history on your accounts, an inquiry may not have any effect on your score. On the other hand if you have applied for a lot of credit in the last 12 months, depending on the type of credit, an inquiry could have a 10+ point hit to your credit score. Unfortunately, there isn’t a way to know up front exactly how much an inquiry could affect your scores.
A good thing to remember is that inquiries on your credit report that occur as a result of you applying for credit will have an effect on your score. For example, applying for a credit card, auto, mortgage, etc. will most likely affect your credit score since these are considered “hard” inquiries. There are also “soft” inquiries to a credit report, but these do not affect your score. An example of a soft inquiry is if you pull your own credit report, promotional inquiries or inquiries from creditors with whom you already have an existing relationship. Background or employment check inquiries are also considered soft inquiries. Soft inquiries may appear on your credit report but they will not have an effect on your scores.
There is a fine line between hard and soft inquiries when it comes to utility inquiries. In most scoring models all non-telephone utility inquiries are bypassed and not included in the scoring models. Phone inquiries such as for cell phones and land lines usually are included in the scoring models.
An inquiry will stay on your report for 24 months, however it will really only have an impact on your credit score for the first 12 months.
What about rate shopping? Older versions of the FICO® scoring models had a 14-day window. This means that if you are shopping for a mortgage or auto loan, any inquiry within that 14 days would only count as one inquiry on your credit report. The inquiries will all show on the credit report but the score impact would be based on only one inquiry. Some of the scoring models then went to a 30-day window in order to help the consumer shop for the best rate. The newer scoring models have gone to a 45-day window. There are only three scoring models that Fannie Mae and Freddie Mac will allow for a mortgage. The models they use for Trans Union and Equifax both have the 45-day shopping window when it comes to inquiries for mortgage and auto. The model they use for Experian though only has the 14-day window. So an Experian score could take a bigger hit from a mortgage or auto inquiry if you are shopping around since they do not have the longer time frame that Equifax and Trans Union do. These shopping windows do not apply to revolving debt, so if you apply for several credit cards all at once, all of those inquiries can affect your scores.
Again, how much an inquiry affects your credit scores really depends on the rest of the credit. A good rule of thumb is to only apply for credit when necessary. And if you are shopping for a mortgage or auto loan, keep it within the time frame allowed by the bureaus.