How Credit Inquires Hurt Your Score!
Credit inquires are a key component of your overall credit rating. Understanding how they impact your score is an important step to achieving a top score.
Knowing that credit inquires impact your score is just the beginning. It is important to understand which inquires have the potential to lower your score. Also, who can pull your credit and for what reasons?
Fortunately, no one can pull your credit just because they want to! For example, your best friend cant pull your credit to see if you really paid cash for your new car! Legitimate reasons for pulling credit include:
- To grant credit
- Collection of a Debt
- Underwrite Insurance
- A Job Offer
- Licensing through Government Agency
- Certain Business Transactions
Even though all of these are legitimate reasons to pull credit, not all of these inquiries will lower your credit score. Only inquires made when you apply for credit will impact your score. These inquires are called hard inquiries.
Soft inquiries, such as when you apply for a license or a new job, do not lower your credit score. It is also important to note that you may pull your own credit as many times as you would like without hurting your credit ranking.
It is difficult to determine exactly how hard inquires with impact your score. About 10% of your credit score falls under a category called new credit. Inquires are part of this. How much impact each inquiry will have depends on the overall information and depth of your credit file.
What is important to understand is that too many inquiries will cause a sharp decrease in your credit score because you appear to be desperately in need of funds. From a lenders perspective, they also get nervous when they see too many inquiries because they have no way of knowing how many accounts you’ve opened. This makes it very difficult for them to calculate your debt to income ratio with confidence.
What about shopping around for a car or home loan? How can you be a smart consumer and try to find the best rate without tanking your credit score?
There as a time when you couldn’t shop around without destroying your credit score. The good news is that that isn’t the case any more.
Under the new laws, mortgage and car inquires made within 14 days of each other are treated as a single inquiry. (Some lenders extend this out to 45 days.) Also, a buffer is in place so all mortgage and auto inquires within 30 days of scoring are ignored. The key point to remember is if you are going to shop around, be quick about it!
Through understanding credit inquiries, you can increase your credit score and qualify for the home of your dreams!
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