How Do Credit Inquiries Affect My Score?

Reader Question: How many points are taken when a lender views your credit?

I cannot answer that because there are a lot of variables at work. In fact, I'd be willing to bet the creators of the credit scoring models could not give you a definitive answer either. Generally speaking, a single inquiry resulting from a loan application will either (A) not affect your credit score at all or (B) only decrease the score by a few points.

For the benefit of all readers, here's some background information on credit inquiries and how they affect your credit score.

In this context, an "inquiry" is when somebody requests a copy of your credit report. This is commonly referred to as a "credit check." There are two main types of inquiries, and only one of them can affect your score:

• Involuntary inquiries - This is when somebody pulls your credit report and score without your input or request. By law, a business needs a legitimate reason to make such an inquiry. This might include a periodic review of your credit by your card company, an employment-related inquiry, or some other purpose. Involuntary credit inquiries do not count against your score.
• Voluntary inquiries - This is when somebody makes a credit inquiry as a result of your actions, like when you apply for a car loan or a mortgage loan. These types of inquiries do count against your credit score, but usually in a minimal way.

Voluntary credit inquiries fall under the category of "new credit." You can see by the chart below that this category of information only accounts for 10% of your FICO credit score, and the inquiries themselves only make a portion of that percentage. "New credit" refers to the number of recent inquiries that were made, as well as any new accounts / loans that may have come in the wake of those inquiries.



In most cases, one or two voluntary credit inquiries made in this fashion (when applying for a loan) will not affect your score at all. If it does have an impact, it will only lower your score by a few points.

It's not necessarily the inquiries themselves that are taken into account, but the new lines of credit that are opened up. In other words, the scoring models are smart enough to know that people will often "rate shop" to compare offers from different lenders. So they don't really penalize you for this.

Here's what the MyFICO website has to say on this subject: "So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping." -Source: www.myfico.com (This comes from the company who created the most widely used credit scoring system.)

If You Make a Lot of Inquiries

If you have an excessive number of voluntary credit inquiries within a short period of time (and I'm talking more than a dozen here), then your credit score might take a bigger hit. This sets off a red flag that you are in some kind of financial trouble, and it puts you into a demographic category of people who are more likely to declare bankruptcy in the future. So your credit score might be lowered much more than "a few points."

Here's what you should take away from this. The normal process of applying for a mortgage loan or car loan will result in voluntary credit inquiries, because you give the lender your permission to pull your credit as part of the application process. In most cases, this has such a small impact on your score (if any) that you shouldn't even worry about it. An excessive number of inquiries, on the other hand, could lower your score significantly.