While calculating credit scores, FICO score does take into account credit inquiries. If you’re not familiar with the term credit inquiry, you should be aware that this is nothing but the record of who pulled out your credit report and on which date. When it comes to credit applications, there are many consumers who are worried about applying for credit as they feel that this might lower their credit score. However, the actual fact is that credit inquiries might lower your credit score but it is not that credit inquiries will always hurt your credit score.
What is the true impact of a credit inquiry on your credit score?
Before you decide not to apply for whatever you were about to apply for, you should consider the fact that inquiries usually have a marginal impact on your credit score. Just because an inquiry might cause your credit score to plunge, it doesn’t mean that it will go down to such an extent that the lenders will change their mind about lending you credit. If your FICO score drops from 790 to 786 due to some new inquiries, this is not going to make a relevant change to your borrowing ability. You should also keep in mind that majority of the credit applications usually results in a single inquiry on one of the three credit reports. When you apply for new credit, this won’t mean that all the 3 credit reports from the 3 CRAs will be pulled out. They will check one report and therefore a single inquiry will be present in only a single credit report. This will also mean that your FICO credit scores on the 2 other credit reports won’t affect at all.
What is the grand scheme behind credit inquiries hurting your credit score?
One thing that should be kept in mind is that credit inquiries aren’t just the only thing that is terribly important in the entire scheme of things and computation of your credit score. Credit inquiries affect up to 10% of the points in your FICO score and therefore when it comes to the pieces of the FICO score that gets affected, inquiries consist of the smallest piece. According to FICO, 57% of the consumers are getting maximum points from the inquiry point category and this means that the inquiries aren’t lowering their credit scores. Only 4% of consumers lose more than 20 points due to inquiries by the lenders.
In a nutshell, inquiries don’t take a huge space while calculating your credit score and hence you shouldn’t worry about the credit inquiries. Get new lines of credit only after shopping around so that you don’t need to fret about dropping down your credit score. Pull out your credit report time to time to check the listings, whether or not they have any serious impact on your credit score.
Author Bio: This article has been contributed by Allen Smith. He is a contributory writer for Oak View Law Group, CA based law firm. He is also a financial advisor and guest author for acclaimed blogs. Allen has been writing for more than five years and helping people to get wise with their money. His interests include attending financial seminars, writing columns related to debt settlement help, bankruptcy filling, credit consolidation and visiting personal finance blogs. Please click here to know more about OVLG.
