Whether you’re financing a home, car or applying for a credit card, pulling your credit is typically required by the lender. Like most savvy shoppers, you want to make sure you get the best terms. But how does having your credit pulled by multiple lenders affect your score?
One of the first things to understand is what is included in the credit report.
- Your credit score - A FICO® Score is a score developed by The Fair Isaac Corporation to measure how much of a credit risk you may be. Typically, you will have 3 scores from the main credit bureaus (Transunion, Equifax and Experian). More on What Makes Up My Score?
- Trade Lines – These are your credit accounts. They have the type of account, date you opened the account, your credit limit or loan amount, account balance and your payment history.
- Public Record & Collections – This is public record information from state and county courts, and information on overdue debt.
- Credit Inquiries - The inquiries section contains a list of everyone who accessed your credit report within the last two years.
When reviewing a copy of your report, you may recognize the names of the business for which you applied for credit. Some you may not recognize. Some that you do not recognize might not affect your scores, and some could be the names of credit companies that banks, mortgage companies or businesses use as third-party providers of credit reports.
Shopping for the best terms?
When shopping for a mortgage, auto loan, or student loan, FICO® allows for a period of shopping which will not continually affect your credit score. Because shopping may force the consumer to have their credit history checked by multiple companies, FICO® will ignore subsequent credit inquiries for a period of up to 30 days. As time passes, FICO® will continue to look at blocks of inquiries of the same type within a 30-day range as just one inquiry. Some credit bureaus may use older versions of the FICO® Score model. For those, the period of shopping may be limited to a 14-day window, and for the newest score model, the window can be as much as 45 days.
How much does an individual inquiry change your score?
An individual or first inquiry may affect your score by as much as 5 points. The amount of points per inquiry can vary from person-to-person depending on a wide range of credit parameters. Consumers with multiple inquiries and several newly opened accounts should expect a greater impact on their scores than someone with a long credit history taking out a new auto loan and no other newly acquired credit.
Inquiries overall play a very minor part in assessing a consumer’s overall risk, especially when compared to length of credit history, payment history, and credit utilization.
What can I do to make sure my credit scores are strong?
When shopping for a loan, make sure you do it within that 30-day window. Consumers with above average FICO® Scores tend to pay their bills on time, keep their balances low on credit cards compared to the limit available, and apply for credit only as needed and not impulsively.
It is also very important to establish a habit of checking your own credit report at least once a year for accuracy. You have consumer rights to copies of your report. Use those rights. Make sure your report is correct. So much of what you pay including insurance rates, mortgage rates, loan rates and credit card rates depend on your scores. Do not let erroneous information keep your scores lower than they should be.
And, do not stress too much about an inquiry or two.