Credit Scoring - How inquiries affect your credit score
Fair Isaac is reluctant to give out specifics on how they calculate your credit score, but we will give you bits and pieces whenever possible.
Inquiries occur whenever your credit report is pulled. They are recorded on your credit report. However there are two kinds of inquiries:
- Soft Inquiries occur when you pull your credit report or when one of your existing creditors pulls your credit report. Why would a creditor do this? They are checking to see how you are doing credit-wise to see if potential problems exist. Soft inquiries supposedly have no effect on your credit score.
- Hard inquiries occur when your credit report is pulled as a result of your applying for new credit. These count against you.
So what if you apply all over town looking for a mortgage, just as we advise? How about auto loans? It used to be that the scoring system made no distinction with these inquiries, but so many people complained that Fair Isaac changed their scoring tactics for those who were just being good consumers by shopping around. According to Fair Isaac, all three CRAs are now using the same program to calculate inquiries. Here are the exceptions made for auto loans and mortgage inquiries:
- An inquiry buffer is in place and all AUTO and MORTGAGE inquiries within 30 days from Scoring are IGNORED.
- AUTO and MORTGAGE inquiries in any 14 day period count as one inquiry, this is called de-duplication in the industry (like you really wanted to know that).
Of course, only if the auto and mortgage inquiries are indicated as such will they be scored correctly. How do we know that all lenders are going to do this properly? We don't. I haven't looked at a credit report and seen any information on it that would indicate what kinds of inquiries were on there. This information is hidden in the databases of the credit bureaus.
Need we say it? (We will, of course, say it anyway.) All other credit card, charge card, cell phone, bank loan, insurance or any other credit inquiries that are not mortgage or auto related count separately.
So how many inquiries are too many? We can't really tell you for sure, but obviously, you want to keep them to a minimum.
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