It’s no secret that FICO scores and other credit risk scores consider credit inquiries when calculating your credit scores. A credit inquiry, if you are not familiar with it, is a record of who pulled your credit report and on what date.
If you want to bone up on inquiries you can do so here. I wrote that article for Mint a couple of years ago and the content is still accurate today.
When it comes to credit applications, many consumers are worried that by applying for credit they might lower their scores. That is certainly a possibility. Credit inquiries can lower your FICO scores. Notice I used the word “can” and not the word “will.”
The True Impact of an Inquiry
Before you choose to not apply for whatever it is you’re applying for, consider the fact that inquiries have a marginal, at best, impact on your credit scores.
Further, just because an inquiry causes your score to go down it may not cause it to go down enough to change any lender’s mind. Going from FICO 790 to FICO 786 because of new inquiries is likely going to be an irrelevant change when it comes to your credit application.
You’ll also want to keep in mind that the majority of credit applications result in one new inquiry on one of your three credit reports.
Applying for a new credit card doesn’t mean all three of your credit reports are being accessed. Only one is going to be pulled so the new inquiry will only appear on that particular credit report. That means your FICO scores at the other two credit bureaus are not impacted at all.
The only exception to this rule is a mortgage application where the lender or broker will likely pull all three of your credit reports.
The Grand Scheme
Something else to keep in mind…credit inquiries really aren’t terribly important in the grand scheme of things. Inquiries account for up to 10% of the points in your FICO scores. When it comes to pieces of the FICO score pie, it’s the smallest piece. The age of your credit report is more important than your inquiries.
FICO just released some data quantifying the true impact of inquiries to their scores. 57% of consumers are getting the maximum number of points from the inquiry category, which means inquiries are not lowering their scores at all. Inquiries are one of the top four reasons your FICO scores aren’t higher only 11% of the time.
And finally, only 4% of consumers lose more than 20 points in their FICO score because of inquiries. According to Frederic Huynh, one of FICO’s credit score scientists, “The bottom line is that I would not characterize inquiries as being a very important score factor relative to other predictors.”
