The Lowdown on Inquiries on your Credit Report

Inquiries and How they Affect your Credit Score

The items in your credit report will affect your credit score. A lowered rating affects your chances of getting a loan, a mortgage, or even a job. This is why monitoring the contents of your credit report is a must for all consumers. Most of us put prime importance on such things as collection accounts, old bankruptcies, and late payments—and we rightfully should. After all, these can damage your credit report for years. Paying attention to all these major listings when your report is at an all-time low is a must.

However, inquiries are also other items in your credit report that you need to look at closely. Certainly, the dent on your credit score will not be as huge as the other derogatory listings there but it is still a negative impact nonetheless. But not all inquiries can pull down your credit score. Before discussing what these are, just what exactly is an inquiry? How long do they stay in your credit report and just how do they affect your credit score?

An inquiry results when you or a third party asks for a copy of your credit report. The third party can include creditors like banks and other financial institutions that you have an existing account with or have applied any type of loan to. They may also be persons, like a future employer or landlord who want to see if you are financially responsible. Every time you request a copy of your own credit report, you are also making an inquiry.

While soft inquiries do not affect your credit score, hard ones do (more on these two types in the next section). The latter stays in your credit report for a couple of years although they only figure in your credit score calculation in its first year.

Typically, inquiries do not affect your credit score as much as delinquencies do. Besides, when the credit bureau gives you your credit score, they also put more importance on such factors as payment history, the balances owed and the length of time you have been on credit. However, if you have a very limited credit history to begin with or are pressed with such issues as delayed payments and high debt, then the number of hard inquiries in your credit report can really pull down your credit score.

Now comes the puzzling question: Why do credit card companies and other financial institutions look at the number of inquiries on your report? The answer is simply because they reveal a lot about the creditworthiness of an individual. They show just how much of a risk you are should you be granted a loan or approved for a mortgage. Studies have revealed that there is a direct relationship between the number of inquiries in a person’s credit report and his or her chances of being delinquent on his or her obligations.

More inquiries also reveal higher chances of filing for bankruptcy. In addition, too many hard inquiries can also indicate that you are hungry for more credit, an indicator of financial trouble. Finally, having too many recent inquiries could signal to the lender that you have more lines of credit than what is currently reflected on your credit report. It would mean that you have a higher debt-to-income ratio, making you a high-credit risk.    

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