One of the least understood aspects of credit scores and credit reports are inquiries. How do they affect your credit score? What exactly are inquires? When do they fall off your credit report? Do they affect your credit score the entire time they reside on your credit report? What about multiple auto loan inquiries within say a 2 week period? Inquiries remain one part of credit scoring that everyday people still just do not seem to understand, so lets break it down shall we?
A credit inquiry is a flag that appears on your credit report each time your credit report is pulled by someone with a permissible purpose. This includes lenders that you have applied for credit with and any collection agencies that have a past due account that you owe on. Credit inquiries will remain visible on your credit report for a period of two years. There are two types of inquires as well, hard and soft. Hard inquiries are the ones from lenders and collection agencies, while soft inquiries are the ones caused when you pull your own credit score or when a potential creditor pre-screens applicants. Only hard inquires can damage your credit score and only hard inquiries from the last year will effect your credit score.
Hard inquires appear the instant a lender pulls your credit report and scores it using any of the various credit scoring methods such as the FICO8 scoring model or the Vantage 3.0 credit scoring model. In the early years of credit reporting it took some time for inquiries to appear but now they appear instantly so that other creditors know you are applying for credit elsewhere. Collection agencies often pull your credit report as well to check on the state of your finances as well as to skip trace debtors trying to avoid being contacted by the collection agencies.
When you see a soft inquiry it is when you pulled you own credit report. They can also appear from lenders who have screened you with a pre-approved credit offer. They can also appear when a creditor you already do business with wants to check on your credit progress. Insurance checks and pre employment checks also appear as soft inquiries. Soft inquiries are not only ignored for calculating your credit score, they also do not even appear visible to creditors.
You can use inquiries to easily spot identity theft if you monitor your credit regularly. Any inquiries appearing from creditors you do not recognize is often a sure fire sign that your identity has not only been stolen but that the thief is now applying for credit in your name.
Under most scoring models each hard inquiry will deduct 5 points from your credit score. This damage fades away over time and in one year your score goes back to normal. Inquires can be grouped together within a 14 day or 45 day period for rate shopping purposes so that only one of the inquiries counts against your credit score, the amount of days 14 vs 45 depends on which credit scoring model the lender is utilizing at the present time.