Why does my score change with inquiries?
A "hard" inquiry is a record that your credit report was accessed in response to an application you submitted. These inquiries provide insight into your financial situation that the rest of the report may not.
"Soft" inquiries are the result of reviews that are not for credit or that you don't initiate. They include getting your own credit report, preapproved credit offers, employment inquiries and reviews by existing lenders. Because they are, for the most part, only shown to you, they do not affect credit scores in any way.
Soft inquiries on your credit report are only visible to you, except: (1) insurance companies may be able to see other insurance company inquiries; and (2) inquiries by debt settlement companies you have authorized to access your report may be shared with your current creditors. Again, these inquiries have no effect on your credit score as they are never considered as a factor in credit scoring models. Soft inquiries are not disputable but are available for reference.
Why Inquiries Have an Impact on Credit Scores
The primary reason hard inquiries influence credit scores is that they indicate you may have acquired new debt that does not yet appear on your report. Additionally, multiple applications within a short period of time may be a sign that you are having financial difficulties and are seeking credit to stay afloat or to live beyond your means.
Lenders want to be sure you are not in danger of overextending yourself before agreeing to extend additional credit.
The Impact of an Inquiry Depends on Your Credit History
The overall impact of an inquiry on your credit scores depends on your unique credit history, but will always be small in comparison to other negative issues such as late payments or very high balances. The more recent the inquiry, the greater the impact will be, but an inquiry alone will never be the reason for an application to be declined.
Federal law requires that inquiries be listed as a risk factor with your credit scores if they account for even a single point, so they are almost always included. But, inquiries are usually the last factor because they have the least impact.
Still, it is a good idea to be selective about applying for credit. You may not want to apply for new credit if you know you are planning to make a major purchase soon, such as a house or a car.
Thanks for asking.
Jennifer White, Consumer Education Specialist