Do Multiple Loan Inquiries Affect Your Credit Score?

Do Multiple Loan Inquiries Affect Your Credit Score? article image.

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 scores.

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.

Inquiries Are Minimally Important to Credit Scores

The reason any type of information in your credit report may factor into your credit score is its indication of credit risk. Taking on multiple new credit obligations in a short period of time indicates possible financial distress and elevated credit risk, which is why hard inquiries can impact your scores. That said, hard inquiries do not always impact your scores and are never the sole reason for a low score or being declined for credit.

When you compare the influence of inquiries with the influence of the other credit scoring categories, you will see that the consideration of inquiries is the least important aspect of your credit reports. They just aren't that important to your scores.

In credit scoring systems developed by FICO®, hard inquiries fall into a category called New Credit, which is the least influential category of its credit score metrics. This category, which includes more than just the consideration of hard inquiries, accounts for 10% of the points in your FICO® Scores . In VantageScore's credit scores, hard inquiries are considered to be "less influential." So even if you have a few inquiries on your credit reports, there are many other more important and influential aspects upon which to focus, such as paying your bills on time and avoiding too much credit card debt. Consumers do not have low scores simply because of credit inquiries.

It's important to note, however, how the FICO® scoring models treat credit card inquiries. FICO®'s consumer-friendly logic that ignores loan inquiries less than 30 days old and consolidates multiple loan inquiries that are within 45 days of each other does not apply to credit card inquiries. For example, if you have six credit card inquiries on your Experian credit report that are all less than 12 months old, they will be counted as six hard inquiries in the FICO® scoring process.

How Long Do Hard Inquiries Remain on Credit Reports?

Consumers benefit from being able to see who accessed their credit reports, and when. Hard inquiries can remain on your credit reports for as long as two years, but, from a credit scoring perspective, hard inquiries are only a factor if they are less than 12 months old.

FICO® and VantageScore credit scoring systems will not consider hard inquiries once they have become 12 months old. As such, while hard inquiries may remain on your credit reports for 24 months, they cease to have any influence on your credit scores during months 12 to 24, if they even had any influence in the first place.

While it is important to understand the inquiries that appear on your credit reports and how they can influence your credit scores, it's also important to keep their relevance in perspective. Some hard inquiries will lower your credit scores; some hard inquiries will not.

If you're not sure whether you have hard or soft inquiries on your Experian credit report, you can check your report for free. If your credit scores have been lowered as a result of credit inquiries or something more concerning, such as late payments or excessive credit card debt, there are steps you can take to improve your credit. In addition to making all payments on time and paying down debt, you can have utility, phone and streaming services added to your Experian credit report with Experian Boost®ø to improve your Experian credit scores. Keeping an eye on your credit and getting credit for your positive bill payments could help you improve both FICO® and VantageScore credit scores at the same time.