Recently, a brand new client came to me very puzzled because they had thought they had good credit... until they were turned down for a credit card. They got in touch with me and together we talked about their credit score.
In their situation, their biggest problem was the number of credit inquiries they had made. It was hurting their ability to get new credit. After talking to them, and a couple of other clients, I realized that there are a lot of myths and misconceptions about inquiries so I thought I would set the record straight.
What is an inquiry?
An inquiry is when YOU ask for your credit to be pulled. So if you go for a mortgage or a car loan or a new credit card or a line of credit, you authorize your credit to be pulled and that is a considered to be an "inquiry" by the credit reporting agencies.
The credit reporting agencies do not consider those credit card pre-approvals that you get in the mail to be inquiries, so they don't count against you. (That's because they are unsolicited; you didn't ask for them).
What is impact of an inquiry on your credit score?
Each inquiry on your credit score can lower your score approximately by two to seven points. That's why several inquiries can dramatically drive your score down farther than you thought (which was the case with the clients I mentioned earlier in this blog post).
Inquiries remain on your credit report for two years.
What about shopping around?
When you buy bigger items -- like a car or a house -- the credit reporting agencies expect that you'll be shopping around at a few different places and each of those places might pull your credit report. So, they give you a 30-day window and they count any inquiries within a 30-day period as just one inquiry. That way, you can shop around for the best rate without the frustration of dinging your credit score just for trying to get a good interest rate!
Inquiry best practices
• If you are thinking about making some larger purchases, keep your time frames tight and do all of your rate shopping within a 30-day period.
• If you don't need any additional credit, don't make unnecessary inquiries "just to see if they'll give you more credit." Keep your inquiries to a minimum.
Inquiries aren't the only thing impacting your credit but they can really add up if you're not careful. Use them wisely -- only when you need to -- and watch out how often you allow your credit to be pulled. Please email me your credit questions at JeanneKelly@TheCreditOwl.com.