December 1st, 2009
Ten percent of your credit score comes from the number of inquiries made for your credit report. Each time a business asks credit reporting bureaus for your credit report, it gets placed on your credit report. In other words, financial establishments and creditors who buy your credit report occupy a space on your credit report.
You don’t have to worry too much about who gets to see your credit report and who has access on your credit score. The Fair Credit Reporting Act mandates all businesses to have an acceptable reason for ordering your free credit report.
Such reasons include granting credit, collecting a debt, underwriting insurance, employment, license issuing by some government agencies and legitimate business transactions. If a business gets hold of your credit report without permissible purpose, they could be violating federal law.
There are generally two types of credit inquiries. These are ¡°hard¡± inquiries and ¡°soft¡± inquiries. Only the former makes an impact on your credit score. Hard inquiries are those made because of an application you made for credit. Usually, these are voluntarily done.
On the other hand, soft inquiries are those that are made by other businesses which give offers for loan or credit card applications. It is very common for credit card companies to send out ¡°pre-approved¡± credit card offers to consumers. But, they do not send out their offers randomly. More often than not, credit card providers buy and check out credit reports of people they offer services to.
Also, inquiries made by potential employers, businesses you already have credit with and those you made yourself do not generally affect your credit score. With this, there are also two kinds of credit reports. Those which consumers have for themselves contain both kinds of inquiries while businesses order credit reports that only have the hard inquiries on them.
The number of inquiries on your credit report could mean different things. If you have too many credit inquiries, your credit score could suffer because that could mean you’re taking on debt more than you can handle. Or, it can also mean you’re in some kind of financial trouble and are looking for credit to help you out.
Your credit score can also drop a few points because of credit inquiries on your few credit accounts with short credit histories. Inquiries remain on the credit report for two years but those made within the last year are used to calculate the score. This means that the most recent of inquiries will have the greatest effect on your credit score.
When you are shopping for interest rates, you don’t need to worry about drops on your score caused by the inquiries from lenders. All mortgage and auto inquiries are considered as a single inquiry, as long as the inquiries are made within a 45 days.
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