There is much confusion and misinformation about inquiries and their impact (or lack thereof) on FICO™ scores.
Inquiries into consumer credit files are treated in two different ways,
- Hard inquiries do impact credit scoring models and include lenders who have accessed your credit reports. Hard inquiries don’t always lower your scores but they can, depending on the reason for the inquiry (referred to as permissible purpose.)
- Soft inquires – These inquires include items such as obtaining a copy of your credit report, pre-approved offers, inquiries related to job offers and insurance and when an existing creditor reviews your credit report. Soft inquiries appear only when you ask for a copy of your credit report and have NO impact on your credit score.
The impact (if any) had by a hard inquiry on your credit score varies based on a number of factors including how many inquiries, the permissible purpose and the dates they occurred. It is not possible to determine the exact impact any single event will have on a credit score as the scoring algorithms take into account to total content of the credit file. Hard inquiries impact credit scores for only 12 months. Although inquiries typically remain visible for 24 months, they have no impact on your credit score after 1 year.
FICO takes into account the permissible purpose and dates when factoring the impact (if any) an inquiry will have on your credit score. Inquiries fall into two groups,
30-day Safe Harbor Period
Mortgage and Auto loan related inquiries that are less than 30 days old have no impact FICO scores. This is done to account for multiple inquiries that often occur while initiating a single home purchase or auto loan.
45-day Rate Shopping Period
Inquiries for Mortgage and Auto Loans that occur in any 45 day period are counted as 1 inquiry (regardless of how many appear.) This again takes into account that buyers will often visit multiple auto dealers or speak with more than one mortgage professional in the course of making a purchase.
Note the emphasis on Mortgage and Auto. The above allowances do NOT apply to other types of inquiries including credit cards, retail store cards and gasoline cards and finance accounts. With the exception of Mortgage and Auto inquiries, each individual hard inquiry will have some negative impact on your FICO score.
The bottom line – Most inquiries for mortgage and auto loans have little if any impact on your FICO score whereas applying for new credit cards or finance accounts can (and often do) cause a drop in your FICO score. If you are preparing to purchase a home, it’s a good idea to refrain from applying for any new credit. Your mortgage professional can give you precise information on how any additional inquiries or debt might impact your mortgage.
Note: Mortgage PreFlight® inquiries Mortgage and per the Safe Harbor and Rate shopping periods above have no impact on your FICO scores.
FICO provides a wealth of resources and information for consumer on their at http://www.myfico.com/CreditEducation/articles/