Whenever someone accesses your personal credit reports or scores, the credit reporting agency that fulfilled that request must, by law, record that “inquiry” on your credit report. Because certain inquiries have been found to be associated with greater credit risk, they may affect your credit scores. In other words, recent inquiries on your credit reports can cause your credit scores to drop.
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That said, there are a few important things to keep in mind with inquiries.
- The impact of a single credit inquiry is usually small, in the range of 3—7 points or so. In addition, since most credit applications result in an inquiry into a single credit file with Equifax, Experian or TransUnion, you aren’t likely to see your scores drop across the board.
- Not all inquiries affect your credit scores. “Soft inquiries,” such as those generated when you check your own credit reports or scores, those related to pre-approved credit offers, those created when your current lenders review your accounts, and those from employment or insurance related inquiries, don’t affect your credit scores. It’s “hard inquiries”, which are associated with applying for credit, that may count.
- In certain scoring models, certain types of inquiries may be grouped together and count as one. For example, within specific FICO scoring models, mortgage, student loan, or auto loan-related inquiries within a 15-day, 30-day or 45-day window may count as a single inquiry. VantageScore uses a 14-day rolling window where all inquiries are grouped as one. However, since you will not know in advance which credit scoring model a lender will use, it’s best to try to keep hard inquiries to a minimum when possible.
- Inquiries are reported for two years, however, for the most part only those in the last twelve months count when scores are calculated.
- It’s difficult to remove inquiries because the bureaus are required by law to disclose to you the name of any company that has requested your reports in the last two years. But if you are a fraud victim, or someone pulls your credit reports without a legitimate and legal purpose, you can ask the credit reporting agency to remove or “suppress” the inquiry.
In addition to credit inquiries, this factor looks at new accounts you have opened recently. Generally new accounts are associated with higher risk, though if you manage them responsibly their impact usually diminishes fairly quickly.
Business Credit Scores and Credit Inquiries
First, keep in mind that it is not at all unusual for a company considering your application for a business loan or credit card to run a credit check on your personal credit reports and scores. In fact, you should probably expect that, particularly if your company is young or you don’t have a strong business credit history. (You can generally assume that if the lender or vendor asks for your Social Security number a credit check will follow, but you can always ask if you’re concerned about possible inquiries.)
Exactly how credit inquiries can affect your business credit scores depends on which scoring model is being used. Some won’t consider them at all. But for others it may be a factor; in particular with those scoring models that incorporate the owner’s personal credit information/scores with that of the company. An Experian Small Business Report will list inquiries in the past seven months. There is also a field for “newly reported,” which identifies trade-ins reported for the first time in the past six months.
There’s a good rule of thumb when it comes to credit applications, whether business or personal: apply only for the products you really want and need. In other words, avoid the shotgun approach.
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