Does a credit inquiry affect my credit report?

Following is an excerpt from Experian's blog. To read the full article, please use the link at the bottom of this excerpt.

Do Multiple Loan Inquiries Affect Your Credit Score?

Consumer credit reports contain a wealth of information about you and your financial relationships with lenders. Auto loans, credit cards, mortgages, student loans and other creditor relationships commonly appear on your credit reports. What they all have in common is that you likely applied for credit with these lenders and they, in turn, pulled a copy or copies of your credit reports before approving your application.

Each time your credit report is pulled, that credit inquiry appears on your credit report for a period of time. Credit inquiries include the date they were made and the inquiring company's name. Some inquiries are considered by credit scoring systems and can affect your credit score. However, multiple loan-related inquiries made within a short period of time are either entirely ignored or treated as a single search for credit, thus protecting your credit scores.

The Difference Between Hard and Soft Inquiries

All inquiries that appear on your credit reports fall neatly within one of two categories: soft inquiries or hard inquiries. A soft inquiry does not normally represent a formal application of credit, but indicates that your credit report was pulled by either an existing creditor or a company that wants to make you a firm offer of credit or insurance. They also can include a record of you requesting your own report and requests for employment purposes. Because they are not the result of a credit application, soft inquiries do not affect your credit score.

Hard inquiries normally occur when a consumer formally applies for some form of credit, like an auto loan, a mortgage or a credit card. These inquiries can remain on your credit reports for up to two years. Hard inquiries are seen by credit scoring systems and can cause you to have a lower score, but not always. To the extent an inquiry does cause you to have a lower score, the impact of the inquiry will not last more than 12 months and any impact is minimal.

How Do Inquiries for Mortgages, Auto Loans and Other Loans Impact Your Credit Score?

Hard credit inquiries, like other information on your credit reports, are seen by the major consumer credit scoring models, FICO® and VantageScore®. Having multiple hard inquiries within a short period of time can be predictive of credit risk, so having too many inquiries for different types of credit can result in a lower credit score.

While all hard inquiries resulting from loan applications were once considered separate events by credit scoring models, that hasn't been the case for many years. FICO® and VantageScore have evolved in their treatment of multiple inquiries as a way to avoid unfairly penalizing a consumer for being a smart rate shopper.

In the contemporary versions of FICO®'s credit scores, for example, hard inquiries related to mortgage, auto loan and student loan applications are entirely ignored for 30 days from the date of the inquiry. So if you settle on a loan during that 30-day time period, your scores will not be affected by inquiries.

After those inquiries have aged past 30 days, they still may not be counted as independent inquiries by credit scoring models. That's because FICO® considers similar loan-related inquiries that have occurred within 45 days of each other as a single inquiry in the scoring process.

For example, if you shopped around for an auto loan with five different lenders over a period of 45 days, FICO® would consider those five hard inquiries as one hard inquiry for credit scoring purposes. This is because the inquiries all occurred within 45 days of each other, and FICO® understands that you were rate-shopping for one loan, not five loans.

In VantageScore's credit scoring systems, all hard inquiries that occur within 14 days of each other are considered as one inquiry for the scoring process. This applies to all hard inquiries, regardless of the lender.

To read the full article, please visit Experian's blog, Ask Experian. 

Another post you may find helpful is from the Consumer Financial Protection Bureau. In it they clearly state:

You can shop around for a mortgage and it will not hurt your credit

"Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. This is because other creditors realize that you are only going to buy one home. You can shop around and get multiple preapprovals and official Loan Estimates. The impact on your credit is the same no matter how many lenders you consult, as long as the last credit check is within 45 days of the first credit check. Even if a lender needs to check your credit after the 45-day window is over, shopping around is usually still worth it. The impact of an additional inquiry is small, while shopping around for the best deal can save you a lot of money in the long run. Note: the 45-day rule applies only to credit checks from mortgage lenders or brokers' credit card and other inquiries are processed separately."

To read that full article, please visit ConsumerFinance.org/askCFPB

Photo by Alexander Suhorucov