Protect Your Credit Score by Limiting Credit Inquiries

Here's a piece from Bankrate that reminds us all that each inquiry into your credit could hurt your credit score. The details:

Every time you apply for credit, the application shows up on your credit report as a credit inquiry. These inquiries stay on your credit report for two years, but only factor into your credit score for one year. Inquiries not initiated by you, like account reviews by existing accounts, promotional inquiries and you requesting your credit report for review, don't factor into your credit score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

I was having lunch the other day with a mortgage broker friend of mine (he's new to the industry, only a few weeks, so rest assured that he didn't write and sub-prime deals over the past few years.) In addition to discussing the state of the mortgage/housing industry and my house hunting progress, he gave me some advice on how to shop for a mortgage. He said that a few inquiries on your credit reports in a short amount of time (like a month) was ok as lenders saw that as a savvy consumer looking to get a good mortgage rate by shopping with a few companies. But if you extend that out for a few months, it appears to lenders that you're requesting credit from one place, being rejected, going to another place, being rejected, and so on. As you might imagine, they don't like this.

I know it's not exactly the same situation they're discussing above, but it's similar. And the point is the same -- limit the number of inquiries into your credit and you'll help your credit score. And as we know, there are some very big advantages/savings associated with having a good credit score.

Comments

[Brad]

There's a distinction to be made here, FMF. Mortgage inquiries are treated differently than all other inquiries. Multiple mortgage inquiries within a month are treated by the bureaus (by law) as one inquiry in the calculation of credit scores. So it's not that multiple inquiries of any type within a month are OK . . . that is only true for mortgages (and perhaps autos, if I remember correctly). For all other inquiries, every one matters. 3 credit card inquiries within a month is most definitely a bad thing.

The reason is simple. Multiple mortgage or auto inquiries = rate shopping, which is an acceptable behavior. Multiple inquiries for personal lines, credit cards, etc. = desperate for credit, a sign of a very risky borrower. Inquiries, as you said above, can be very meaningful in determining risk. Risk of delinquency, charge-off, and bankruptcy go way up when a person has many inquiries.

[Bad Credit Lenders]

very informative piece, I can see the logic behind it. Why would someone apply for multiple credit cards anyhow.

[Michael]

Yes, it is true, too much credit cards, will surely affect your credit score. One should limit the expenses made through the credit cards to save the credit score. Because credit score is much important if you want a loan to buy home or a car.