Credit Inquiries
Each time you apply for credit (bank loan, car loan, mortgage, credit card, store card etc.) your application will authorize the lender in question to contact one or more of the credit reporting bureaus to ask for a copy of your credit report and your credit score and details of this inquiry will be recorded on your credit report.
This has two effects. First, it provides the lender with information on which to base his decision on whether or not to grant you credit and second, it can impact your credit score.
There are a number of different things which go to make up your credit score and one of these, which accounts for about 10% of your overall score, is 'new credit' which includes credit inquiries. We will explain this in more detail shortly but, in simple terms, if your credit report shows a large number of credit inquiries this can be taken to indicate that you are over-extending yourself and thus lower your credit score. Before we investigate this further however, it is also important to understand that there are two different types of credit inquiry, one
of which affects your credit score and one which does not.
Credit Inquiries Which Affect Your Credit Score.
A credit inquiry will only affect your credit score if you have yourself initiated the inquiry. Such inquiries are normally termed 'voluntary' inquiries. If, for example, you apply for a car loan then, as part of
the application process, you will be granting the lender permission to access your credit report in order to make a decision about whether or not to grant your car loan. This inquiry is thus being made by the lender on your behalf and at your request.
Credit Inquiries Which Do Not Affect Your Credit Score.
Credit inquiries can also be made without your permission, and indeed without your knowledge, by businesses which have a 'permissible purpose' under the terms of the Fair Credit Reporting Act (FCRA). This might sound complicated but in essence it means that, for example, a credit card company can market its card services by accessing the credit reports of individuals and selecting those people who they feel would make suitable customers to whom they will then mail pre-approved offers of credit.
Credit inquiries of this nature will appear on your credit report. However, because you have not initiated them yourself, they are referred to as 'involuntary' inquiries and are not taken into account when calculating your credit score.
In addition to inquiries of this nature, prospective employers are also permitted to access your credit report and these too do not count towards your credit score.
Finally, any request you make for details of your own report (including requests for your free annual copy of your credit report) will not affect your credit score.
How Do Voluntary Inquiries Affect My Credit Score?
A number of factors will be taken into account when looking at credit inquiries including such things as the number of recent inquiries made and the number and type of accounts opened as a result of these inquiries (as well as the number of recent accounts as a proportion of the total number of accounts shown on your report)
In general this means that one or two inquiries are unlikely to have any effect on your credit score or that, if they do affect your score, it is likely to be by just a few points. This said, because inquiries and new accounts are viewed against the total number of accounts recorded in your credit history, inquiries will have a greater impact if you have only a small number of accounts or only a short period of recorded credit history.
One problem which the credit reporting agencies are well aware of is that of 'rate shopping'. In other words, if you are looking for say a mortgage or a car loan you may well shop around in order to find the best rate for your purchase. This can of course result in a large number of inquiries being made in a very short space of time. To compensate for this the credit bureaus do two things. First, they ignore any inquiries which are made within 30 days of the date on which your score is calculated. Second, when viewing inquiries that are more than 30 days old they look at similar inquiries (such as mortgage inquiries) which fall within a 30 day period and class these as just a single inquiry. [Note: older versions of the FICO scoring system used a 14 day rather than a 30 day period and newer versions are now beginning to use a 45 day period.]
Can I Improve My Credit Score By Removing Credit Inquiries?
The simple answer to this question is 'yes' and we will show you in a moment how to delete inquiries on a credit report. First, however, it is important to understand that many of the problems arising from credit inquiries can be avoided with a little forethought.
For example, it is never a good idea to ask about credit unless you need it. You might be tempted by a salesperson in a store to fill out an application for a store card but you should not do so unless you really feel that you need the card and that you will benefit from having it. Many of us fill out an application without really thinking about it and often without any intention of ever actually using the card and do not realize that merely completing the application form can lower our credit score.
Also, if you do need credit and want to shop around for the best deal then do so in as short a period of time as you can and, ideally, within less than 30 days. If you are thinking about buying a new car in a few months time then don't spend those few months 'rate shopping'. By all means look around and select the car you want to buy and draw up a short-list of dealers to approach but, when it comes time to find the best price, get quotes from the various different dealer over no more than a 3 or 4 week period.
Okay, so what are the secrets to removing inquiries from your credit report?
First of all a credit inquiry should be removed from your report after two years and so you are really only concerned with recent inquiries made within say the past year which are classed as 'voluntary' inquiries and which you are satisfied in your own mind that you did not authorize.
Once you have identified one or more such inquiries on your record you will need the address for each inquirer. In the case of the Experian credit reporting agency this address will appear on the report, but it the case of both the Equifax credit reporting agency and the TransUnion credit reporting agency it will not and you will have to ask the respective agency for the address.
Having obtained the necessary addresses you should then write to each inquirer. Your letter does not have to be lengthy but it should mention the name of the credit bureau and details of the enquiry as shown on your credit report. It should then go on to say that you believe that you did not authorize this enquiry and that you therefore request that company concerned to take action to remove it from your credit record and to inform you in writing of the action taken. Finally, the letter should state that, if you did indeed authorize the company to make the inquiry, then you apologize for any inconvenience caused to the company but ask them to furnish you with proof of this fact. This letter should be sent by certified mail.
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