How Credit Inquiries Affect Your Credit

Every time you apply for credit from a lending institution, an inquiry is recorded on your credit report. This is called a hard pull inquiry. A soft pull inquiry is if your credit report is pulled by a non-creditor. Soft pull inquiries do not affect your credit scores; these include: potential employers, non-lenders, or yourself. Each time a credit report is pulled by a lender, it can have a negative impact on your score(s) by as much as 3 to 5 points. Credit inquiries are listed at the end of a credit report and remain on your report for 2 years.

How Do Lenders Interpret Credit Inquiries?

When a lender reviews a credit report and sees numerous recent inquiries, it is an indication that a borrower is applying for credit and being turned down by other lenders. This is a sign of potential financial problems or increased risk to a lender. Multiple recent inquiries are a red flag to potential lenders because they are a sign that recent unreported loans and revolving accounts may have been opened but not yet reported to the credit bureaus. Although, the type of lender pulling your credit will impact how your scores are affected. Mortgage, auto, and student loan inquiries will not impact your scores for 30 days. Also, any inquiries for mortgages, auto loans, or student loans within a 45 day period will only count as one inquiry. The rational for these two exceptions is to allow a consumer to shop for the best interest rate with multiple lenders without being penalized. Just remember, these rules only apply to mortgage, auto, and student loan inquiries. Credit cards, department store cards, gas cards, and personal loan inquiries are each counted against your score(s) immediately.

How to Protect Yourself From Credit Inquiry Abuse

Request a free copy of your credit report from all of the 3 main credit agencies (TransUnion, Experian, and Equifax). Credit reports can be requested online from any of the above mentioned credit agencies or from annualcreditreport.com. You are legally entitled to one free credit report yearly from each credit agency.

Thoroughly review the credit report(s) for any errors or inquiries that you did not authorize. Auto dealerships are notorious for sending your credit application for an auto loan to multiple lenders. You may see 10 to 15 inquiries after you apply for an auto loan through a dealership. Although there is no fixed point value per inquiry, depending on the length of your credit history you may see this amount of inquiries lower your scores significantly. You can request the credit bureau correct any errors or dispute any unauthorized inquiries. If the creditor who put the unauthorized credit inquiry cannot provide evidence that you authorized them to pull your credit, it should be removed from your report.

Credit inquiries account for 10% of your credit score(s). So it is imperative that you review your credit, making sure any inquiries listed on your report were authorized by you. Any lender who pulls your credit without your permission is violating federal law.

Article Source: http://EzineArticles.com/?expert=Michael_Zuren_PhD.