I recently ordered my annual free credit report and just about jumped out of my skin initially as I reviewed the inquiries section– I didn’t recognize the half of them!

Fortunately, the lengthy list of inquiries I didn’t recall were simply “soft inquiries”, and therefore not going to be included in calculating my credit score. But the initial concern is one shared by many people when reviewing their credit report; inquiries are one of the most confusing and least understood aspects of the credit reporting system.

An inquiry is a record of a companies that have checked your credit information. According to the Fair Credit Reporting Act, your credit information may only be accessed by individuals who can prove it is required for a legitimate business need. For example, this might include creditors, lenders, insurers and landlords who need to review your credit as a part of an application process. Normally, these businesses will only check with one credit reporting agency, therefore an inquiry record will only appear on the credit report that was checked for the application; another confusing aspect of inquiries, as they will likely vary across each of the three credit reports.

Inquiries are classified in two categories, and it is important to understand the difference. A “hard inquiry” occurs when a business views your credit report for the purpose of an application, and a “soft inquiry” is when your credit is checked for one of several other reasons. If you apply for a new credit card, a hard inquiry record will appear on your credit report and may impact your credit. When you check your own credit report, or when it is checked for a pre-approved marketing purpose (you know; all those incredible-sounding credit card offers you get in the mail that you’ll never qualify for ), it is considered a soft inquiry and will not harm your credit score. Soft inquires additionally occur 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.

So why are inquiries even considered in the calculation of an individual’s credit score? The rationale is that how often a consumer has applied for new credit is relevant to the assessing the level of risk a card issuer is taking in granting you credit. Potential creditors may think you are trying to spend beyond your means if there is an excessive number of inquiries on your credit report– but how many is too many? Nobody knows for sure as Fair Isaac’s scoring model is a well-kept secret, but to venture a guess over 8-10 is probably excessive. You can still shop around for a home or auto loan; multiple inquiries for the same purpose in a short amount of time (typically a 14 day period) are commonly grouped into one less harmful inquiry session, a practice dubbed “de-duplication” in the industry. Inquiries are also helpful for consumers because they can notify you of a potential identity thief applying for accounts in your name.

How long do they last? Most hard inquiries remain on your credit report for two years from the original placement. All inquiries must stay on your credit report for at least a year. You are allowed to dispute inquiries on your credit report, but it can be difficult to prove that the inquiry is indeed inaccurate. If you are unsure of where an inquiry came from, try contacting the company listed before sending off a letter of dispute.

In general, inquiries are pretty low on the totem pole as far as having a significant affect on your credit score. But if you’ve addressed all the major items and still are looking for ways to squeak a few points here and there,  here is a great article on how to go about getting inquires removed from your credit report.

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