Credit Inquiries

Every time you apply for new credit, lenders will request a copy of your credit report. Their inquiries will appear in your credit report. Inquiries make up 10% of your credit report. Some inquiries may hurt your credit by lowering your credit score, while others will have no effect on your credit score. Inquiries represent your risk as a borrower. Lenders may assume that numerous inquiries in a short period of time may mean that you’re taking on too much debt as a result of financial trouble. It is important to understand which inquiries affect your credit score and why.

Whenever a business wants to place an inquiry about your credit, the Fair Credit Reporting Act (FCRA) requires that there be an acceptable reason to inquire into your personal credit report. These reasons include:

• To grant credit
• Collect a debt
• Underwrite insurance
• Employment
• License issuing by the government
• Legitimate business transactions

1.Hard Inquiry
Hard inquiry is an inquiry a lender makes when you apply for a new credit line. This inquiry counts towards your credit score because you are borrowing money on credit, which increases your debt. When you apply for multiple credit lines in a short period of time, your credit score will get affected. On average, a hard inquiry will take away less than five points from your FICO score.

2.Soft Inquiries
Soft inquiries are made by potential employers, businesses that you already have credit with and yourself. When you request a copy of your credit report to consult with Credit Freedom USA, it is considered a soft inquiry. Soft inquiries do not affect your credit score.

*Credit inquiries will remain on your report for two years. However, only the inquiries made within last year will be included in your credit score calculation. Therefore, the most recent inquiries will have the most influence on your score.

Applying for a mortgage, auto loan, or a student loan is referred to as rate shopping. Rate shopping will cause lenders to make multiple inquiries on your credit report. However, all the inquiries made into your credit report while rate shopping within 45 days period will count as one inquiry. Therefore, if you find a loan within 45 days, the inquiries will not affect your credit score.