A credit report inquiry is one of the more interesting items that show up on a credit report.
Its credit score impact generally varies from small to none at all. But its effect on personal decision making can be much larger. Let’s take a look at this chameleon-like piece of credit data.
Inquiries are one of the many factors that affect your credit score, but as they make up only about 10% of your FICO score, the effect is generally a modest one. A second factor that mitigates any potential damage from inquires is that they drop off your credit report in two years, not the seven-year threshold applied to negative data such as a delinquency.
Even better, the scoring damage done by an inquiry lasts far shorter than the two-year reporting period; depending on whether you have a full or thin credit profile the impact may disappear in a couple of billing cycles.
Where an inquiry can make the most difference is when a person, rather than a score, uses it to make decisions.
Hard vs. soft inquiries
First, let’s define which inquiries count. There are two kinds, known as “soft” and “hard” inquiries.
Soft inquiries, as their name suggests, do not disturb your credit score. This includes a person checking their own credit report. Along those same lines are inquiries pulled by insurance companies or employers.
Employers use credit reports when deciding whether to hire or promote a person. So, with no credit being granted or extended, the inquiry is soft and there is no scoring damage. Landlords can go either way – hard or soft. Many landlords use a service that generates a soft pull to get them the information they need to decide if a person is likely to pay their rent and be a responsible tenant.
Also included in the soft category are those pulls for preapproved offers of credit. None of these count against your score. The key differentiator is whether the inquiry is for the purpose of deciding whether to extend or increase credit…Read more>>