How Credit Report Inquiries Work

Your credit report includes a record of every business that’s checked it within the past two years. These credit inquiries, typically made when you make an application that requires a review of your credit report, make up 10% of your credit score. Too many credit inquiries can cause your credit score to drop and lead to denied credit applications.

Who Can Check Your Credit Report?

Usually, a business has to get your permission before checking your credit report. For example, creditors and lenders will check your credit report when you make an application for a credit or loan. Prospective employers can check your credit report, but they have to get your written permission first.

Some businesses can check your credit report without your permission, but they must have a “permissible purpose” as defined by the Fair Credit Reporting Act. Debt collectors, for instance, check your credit to get information they can use to collect from you.

Two Types of Credit Inquiries

Not every type of credit inquiry will affect your credit score. Inquires will fall into one of two categories: hard or soft. The hard inquiries are the ones that your credit score considers. Additionally, anyone who checks your credit report sees those hard inquiries. You initiate the hard inquiry when you make an application for credit or other credit-based services.

Just how much your credit score is affected by a new inquiry depends on the other information on your credit report. FICO, the company who developed the FICO score, says that most people will only lose about five points from an additional inquiry. But, you could lose more if you have a short credit history or just a few accounts on your credit report.

Soft inquiries, on the other hand, aren’t included in your credit score. And, you’re the only person who sees these types of inquiries. Soft inquiries are made when you check your own credit report, when a business looks are your credit report for promotional purposes, and sometimes when a company you already do business with checks your credit report. Some of these soft inquiries can be prevented if you opt-out of promotional credit card and insurance offers via www.optoutprescreen.com.

Creditors and lenders may be able to do a soft credit check to pre-qualify you for a credit card or loan, but they’ll do the hard check when it’s time to complete your application.

You can see the list of inquiries by pulling a copy of your credit report. Your credit report will list the name of the business that made the inquiry and the month and year the inquiry was made. However, your credit report won’t necessarily indicate whether a hard or soft inquiry was made. If you see an inquiry and don’t remember making an application with a company, you can contact them to see why an inquiry was made to your credit report.

What If You’re Shopping for a Loan?

Fortunately, rate shopping is usually treated differently and won’t affect your credit score as if you were actually applying for a dozen different loans. Rate-shopping inquiries made within specific time frame are ignored during the shopping period, which ranges from 14 to 45 days depending on the time frame. Rate-shopping inquiries made outside that window are generally treated as a single inquiry.

Keep in mind that rate-shopping applies to mortgage loans, auto loans, and student loans, not credit cards.

Time Limit for Reporting Inquiries

Inquiries disappear from your credit report much sooner than other types of negative information. While other negatives, like late payments or collection accounts, stay on your credit report for seven years, inquiries only stay on your credit report for two years. And, the FICO score only considers inquiries that are less than one year old. As inquiries age, they hurt your credit less and soon, there’ll be no record of the inquiry.

Sources: myFICO.com, FTC.gov