How Do Credit Inquiries Affect Your FICO Score

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4. How Do Credit Inquiries Affect Your FICO Score

When you start shopping for an auto loan, you probably have lots of questions.

One of the most common question that people ask is "how will credit inquires affect my credit score? The truth is, if you are responsible, have paid your bills on time, and have low balances on credit cards, there will be little or no effect on your credit.

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What is an Inquiry?

Let's start with the basics. When you apply for a loan, you authorize lenders to inquire for a copy of your credit report. If you check your credit report later on, you may notice that the last inquiry was listed.

Why Would Applications Affect My Credit?

Research has shown that opening many credit cards and taking multiple loans in a short period of time can create a significant credit risk. If your report shows that you have been applying for multiple lines of credit in a week, it can negatively affect your score. If, however, you are rate shopping for a single loan, the effect is handled differently.

What is the Impact?

The impact on your credit due to inquiries will vary depending on your credit history. In general, credit inquiries have a minor impact, if any, on a person's credit score. The number of accounts and length of credit history can play a factor. MyFico.com notes that "while inquiries can often play a part in assessing risk, they play a minor part. More important factors like bill payment and debt burden play a larger role. Also, inquiries for mortgages, car financing, and student loans are treated differently than inquiries for credit cards and other consumer loans."

Bottom Line

If you are responsible, pay your bills on time, and keep low balances on credit cards and other credit products, inquiries will play little or no part on your score.

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