Credit Inquiries: Bad for your Credit Score?

You probably have heard the warnings: do not check your credit report too often, because such action actually will damage your credit! Fortunately, this is untrue, but there are certain types of inquiries into credit that have an affect on your score. It is important to distinguish between two types of inquires:

• Soft Inquiries refer to the pulling of your credit by you either for your own use, or by one of your current creditors for monitoring purposes. Soft inquires should not have an affect on your credit score.

• Hard Inquiries refer to the pulling of your credit by a potential creditor to whom you have applied for new credit. Hard inquiries do have an affect on your credit score.

Why should applying for credit have a negative affect on your credit score? The answer is that applying for credit assumes that you need more credit. While credit can be incredibly useful and sometimes completely necessary in order to realize one’s financial and personal goals, applying to too many different creditors in a short period is a red flag. It can make one appear desperate for credit, and your score may be adjusted to reflect the apparent risk. Creditors additionally may assume that not only did you apply for many different sources of credit, but also that you may have received some of that credit and STILL are in need of more.

Even those creditors whom you least expect to pull your credit still may do so before extending credit to you. If you receive an offer in the mail and return the application, for example, your credit likely will be pulled even if you have been “pre-approved”.

You may be asking, “But shouldn’t I shop around for credit when looking to purchase a big ticket item?” Certainly, nothing is wrong with being a wise consumer, and the credit inquiry “rules” fortunately reflect this on some financial products. When shopping for a mortgage or auto loan, for example, all credit inquiries made within two weeks of one another count only as one inquiry on your report.

Once credit inquiries have been tacked on to your credit report, how can you get them removed? Remember that you do not need to rid your report of all credit inquiries, but rather just enough to raise your score if that is your goal. Regardless of type, all inquires should drop from your credit reports within two years. If your report contains an inquiry that is older, you should contact the credit bureau directly and ask that the discrepancy be resolved. Fortunately, many creditors will not be fazed by inquiries that are more than six months old.

If you have up-to-date inquiries that you would like dropped from your report, you may find much success in doing so. When examining your report from each of the three main credit reporting agencies – Experian, Equifax, and TransUnion – inquiry information will be listed on the bottom. Consider which inquiries may be hurting your score most, as well as any inquiries with which you do not believe you are familiar. Hard inquiries into your credit require authorization on your part, so you should look into anything that you do not recognize.

Once you have decided which marks you would like to contest, or of which you would like proof, contact the creditor who made each inquiry. Creditors’ addresses may be found on your Experian report. You may find out further contact information by writing or calling the credit bureaus, although writing tends to work much more consistently.

When contacting creditors, ask for documentation that you signed an authorization that approved an inquiry into your credit. Believe it or not, many will agree at this point to ask the credit bureau(s) that the mark be removed, either because they cannot prove your authorization or simply as a courteous gesture to you. Some creditors, on the other hand, may try to ignore your contacts. Should this occur, keep an accurate record of your attempts. Even in the event that you did authorize an inquiry in this situation, the creditors’ behavior in and of itself can get the inquiry removed from your report.

Of course, some creditors may have documentation of your signed authorization and will provide you with such proof. If you feel that you were in some way deceived or confused into authorizing a pull of your credit, threaten to alert the State Banking Commission of your complaint if the mark is not removed. Follow through with this action if the creditor ignores your arguments.

If at any point in this process you feel that you are being treated unfairly, contact the State Banking Commission.

Inquiries into one’s credit are necessary to obtain new funds, but too many within a short period of time can harm your credit and give creditors a bad impression of your finances. Monitor your credit as often as you wish, but keep inquiries into new credit at a minimum. If credit inquiries are hindering your credit report, the above tactics can be most helpful in removing unauthorized or unfair inquiries, and in improving your chances for credit in the future.