• September 13, 2021

How do credit inquiries affect credit scores?

If you apply for credit from a bank or company that offers credit, an inquiry will be reported on your report. This is known as a hard pull credit inquiry. A soft pull inquiry is if your report is pulled by an institution that does not offer credit. Institutions that can conduct soft research include: employers, non-lenders, government agencies, or yourself. Every time a lender pulls your credit report, it can negatively impact your score (s) by up to 3 to 5 points. Inquiries from credit institutions are listed on the credit report for 2 years.

If you are applying for a mortgage, student loan, or car loan, the inquiry shouldn’t affect your credit score for 30 days. Also, mortgage, student loan, or auto loan inquiries within a 45-day period are only assumed to count as an individual inquiry. These exceptions allow people to search for the best credit rates and terms without being penalized. Inquiries for all other types of credit, such as: department store cards, bank credit cards, gas cards, and personal loan inquiries are instantly posted to your score (s).

You are entitled to a free credit report annually from the top 3 credit bureaus (TransUnion, Equifax, and Experian). You can order the free report online at annualcreditreport.com. According to government guidelines, everyone is entitled to one free credit report per year from each of the major credit reporting agencies. After you receive your free copy of your report, please review it carefully for errors, inaccuracies, unauthorized inquiries, or any unsolicited debt. Also, check to see if there are any authorized user accounts that you no longer want to be associated with, possibly from an ex-spouse or parent.

Below is the basic calculation to determine a credit score. Ten percent of a credit score is determined by the number of credit inquiries a person has requested in the last 12 months. The fifth-teen percent of a credit score is determined by the length of time or the number of payments you have on your credit history. Due to this factor, it is generally beneficial to keep accounts that were paid as agreed open. If you close an account, good payment history will no longer be calculated in your credit score. Ten percent of the credit score is determined by the credit mix that is opened. A consumer’s ability to repay a variety of installment and revolving loans is considered a better risk than a less experienced consumer. Thirty-five percent of the score is determined by payment history. Recent late payments have a more detrimental impact than late payments at age. The remaining 30% of the score calculation is determined by the percentage of credit used by the consumer. It is beneficial to keep your revolving account balances below 50 or even 30% of your available balances.

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