When putting in a credit application, many Americans are worried about how a previous inquiry might look to a lender. Despite many consumers' knowledge of their credit history and how it works, many are still unaware of exactly how too many inquiries affect their credit score.
Inquiries are listed on a credit report every time your credit is reviewed by a lender or anyone with permissible purpose, according to the Fair Credit Reporting Act. While it might seem harmless to have inquiries on your credit report, those requests to look at your credit score can stay on your report history for up to two years.
Avoiding hard inquiries
A hard inquiry is one of the worst things that consumers can receive as it could lower credit scores the most, as opposed to soft inquiries. Examples of things that could generate a hard credit inquiry are checks for mobile phones or apartments. Applications that aren't tied to a form of credit could also result in a hard inquiry.
According to Fair Isaac, people who have had six or more inquiries on their credit in the past year are up to eight times more likely to file for bankruptcy than those who have no inquiries on their credit report.
Maxine Sweet, vice president of public education for Experian, told Bankrate that the general rule for credit reports is that if it's an inquiry that shows that you've taken on more financial obligations, it could either be beneficial or detrimental to credit scores. If the consumer is able to pay off the balance while making payments on time, it could increase their credit score, but late payments could result in less than favorable results.
Soft inquiries consist of personal inquiries on a credit score when the consumer checks their own score. Soft inquiries also include lenders making pre-approved credit offers, insurance and employment credit checks.
Knowing exactly how to understand your credit score could be the difference between being knowledgeable about why credit scores are what they are and being confused by inquiries that could decrease valuable points from credit.
Sarah Davies, senior vice president of analytics and product management for Stamford, Connecticut-based Vantage Score Solutions, told Bankrate.com that a single inquiry doesn't count as much as payment history, revolving utilization and other factors that contribute to the calculation of a credit score.
Revolving credit includes things such as credit cards, which can be troublesome if consumers aren't also putting money away in a basic savings account just in case they need to pay off a balance before going delinquent.
Removing inquiries from credit reports
Those who aren't willing to wait for the two years it takes to remove inquiries from their credit score should take the necessary steps to remove them. Consumers should first find out which credit inquiries are on their reports by ordering all three, which can be done for free through AnnualCreditReport.com. Finding the address for each credit inquirer is the next step before preparing a letter to send to each inquiring creditor to ask them to remove the mark on the credit report.
Each letter should be sent Certified Mail Return Receipt Requested, keeping close track of when the letter is sent because creditors will sometimes try to ignore the challenge.