Running your credit because you've applied for a loan or credit product can affect your FICO score, but most other types of inquiries don't have any effect, according to Fair Isaac Corporation, the company that introduced FICO scores more than 25 years ago. Inquiries that don't affect your score are called "soft" inquiries, while those that may have an effect are called "hard" inquiries.
"Soft" inquiries are those that aren't related to applying for credit like when you look up your own credit or when marketers check your credit. For example, a bank may make a soft inquiry to find out if it wants to offer you a promotional credit card. These inquiries don't impact your FICO score.
An inquiry because you've applied for a credit is a hard inquiry and can affect your FICO score. For example, an application for an auto loan, mortgage, credit card or student loan counts as a hard inquiry. So does an application to rent an apartment.
When computing your credit score, Fair Isaac considers:
- How many hard inquiries you've had.
- How much time has passed since a previous inquiry
- How many accounts of each type you've opened recently.
- How long it's been since you opened an account.
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Shopping For a Loan
Shopping for the best loan is positive behavior, so Fair Isaac doesn't hold it against you. That's why numerous inquiries of the same type within a short period count as one inquiry. For example, several inquiries about an auto loan over a week count as one. If you have inquiries for an apartment, an auto loan and a credit card in the same time period, however, those count as three separate inquiries. If you apply for several credit cards, these also count as separate inquiries.
The time period to count as one inquiry is typically 30 days. However, depending on which version of the FICO score a lender requests, it can range from 14 to 45 days. If you spread your hunt for a mortgage over several months, all those hard inquiries may lower your FICO score.
The Impact of Hard Inquiries
A single hard inquiry might have no effect on some people's credit scores, while other people's scores might fall less than five points, according to Fair Isaac. The effect of inquiries depends on your individual credit history. In general, the amount of your debts and whether you pay your bills on time are more important to your FICO score than inquiries. If you don't have a lot of credit accounts, or if your credit history is short, inquiries can lower your scores more.
Six or more hard inquiries may indicate you're in financial trouble or even poised for bankruptcy, so your FICO score will take a greater hit.
Hard inquiries can affect your FICO score for one year, according to Fair Isaac, and they disappear off your credit report entirely in two years.