| Learn about credit inquiries and how
they can affect your credit rating.
What is a credit inquiry?
A credit inquiry is an item on a credit report that shows a business
with a "permissible purpose" (as defined under the federal
Fair Credit Reporting Act) has previously requested a copy of the
credit report.
Different credit inquiries affect your FICO score
When you check your credit report, you may notice that a number
of credit inquiries have been made, sometimes from businesses that
you did not give permission to view. The only credit inquiries that
count toward your FICO score are the ones that result from your
applications for new credit.
There is only one type of credit inquiry that affects your FICO
score. When you apply for a home mortgage, new apartment, auto loan
or other credit, you authorize the credit lender to request a copy
of your credit report. These types of inquiries, prompted by your
own actions, appear on your credit report and are included in your
FICO score.
Does checking your own credit report affect your
credit score?
Your own credit report requests do not affect your credit score.
Other credit inquiries that do not affect your FICO credit score
includes credit checks made by businesses to offer you goods or
services, or credit inquiries made by businesses with whom you already
have a credit account. Credit checks by prospective employers also
do not count. These types of inquiries may appear on your credit
report, but they are not included in your FICO credit score.
A FICO score takes into account only voluntary inquiries that result
from your application for credit. The information about inquiries
that can be factored into your FICO score includes:
Number of recently opened accounts, and proportion of accounts that
are recently opened, by type of account.
Number of recent credit inquiries.
Time since recent account opening(s), by type of account.
Time since credit inquiry(ies).
A FICO score does not take into account any involuntary inquiries
made by businesses with whom you did not apply for credit, inquiries
from employers, or your own requests to see your credit report.
For many people, one additional credit inquiry (voluntary and initiated
by an application for credit) may not affect their FICO score at
all. For others, one additional inquiry would take less than 5 points
off their FICO score.
Inquiries can have a greater impact, however, if you have few accounts
or a short credit history. Large numbers of inquiries also mean
greater risk: People with six inquiries or more on their credit
reports are eight times more likely to declare bankruptcy than people
with no inquiries on their reports.
How are FICO credit scores calculated?
There are five types of information used to calculate a FICO score
at any given point in time. Each type of information counts as a
percentage of a total FICO credit score:
- Payment history - 35%
- Amounts owed - 30%
- Length of credit history - 15%
- New credit - 10%
- Types of credit in use - 10%
These percentages are based on the importance of the five categories
for the general population. For particular groups, such as people
with relatively short credit histories, the importance of the categories
may differ.
Inquiries are a subset of the "new credit" category shown
above, which accounts for 10% of the total FICO credit score. Their
importance depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone
else with a different credit history. In addition, as the information
in your credit report changes, so does the importance of any factor
in determining your credit score. What's important is the mix of
information, which varies from person to person, and for any one
person over time.
Will my FICO credit score drop if I apply for
a new credit card?
There is a small impact when you apply for new credit, it usually
is not significant. If you apply for several credit cards within
a short period of time, multiple inquiries will appear on your report.
Looking for new credit can equate with higher risk, but most credit
scores are not affected by multiple inquiries from auto or mortgage
lenders within a short period of time. Typically, these are treated
as a single inquiry and will have little impact on the credit score.
Improving your FICO score
If you need a loan, it is recommending that your rate shopping
be done within a focused period of time, such as 30 days. FICO credit
scores distinguish between a search for a single loan and a search
for many new credit lines, in part by the length of time over which
inquiries occur.
Looking for a mortgage or an auto loan may cause multiple lenders
to request your credit report, even though you’re only looking
for one loan. To compensate for this, the credit score counts
multiple auto or mortgage inquiries in any 14-day period as just
one inquiry. In addition, the score ignores all mortgage and
auto inquiries made in the 30 days prior to scoring. So if you
find a loan within 30 days, the inquiries won't affect your credit
score while you're comparing rates.
Generally, people with high FICO credit scores consistently:
- Pay bills on time.
- Keep balances low on credit cards and other revolving credit
products.
- Apply for and open new credit accounts only as needed.
Also, here are some good credit management practices that can help
to raise your FICO credit score over time.
- Re-establish your credit history if you have had creditor problems.
- Opening new credit accounts responsibly and paying them on time
will improve your FICO credit score over the long term.
- Check your own credit report regularly, and before applying
for new credit, to be sure your credit report is accurate and
up-to-date. As long as you order your credit reports directly
from the credit bureaus, or through an organization authorized
to provide credit reports to consumers, your own inquiries will
not affect your FICO credit score.
Order a FICO Credit Score |
