The fact that inquiries have the potential to lower consumer credit scores is not breaking news. Credit savvy consumers know that letting too many lenders pull their credit reports in a short period of time is a bad idea (with the exception of rate shopping for a mortgage, auto loan, or student loan within a 45 day period). However, the idea that inquiries lower your credit scores a particular number of points is a complete myth.
There is nothing on a consumer's credit report that raises or lowers your scores a fixed number of points. For example, an inquiry does not always lower your score 4 points (or 3, 5, or 6 points for that matter). An on-time payment does not raise your credit score 5 points. A late payment does not lower your scores 30 points. That is simply not the way that credit scores work.
How Inquiries Actually Impact Your Credit Scores
Remember, not all inquiries will have a negative impact upon your credit scores. (CLICK HERE to read The Difference Between Hard and Soft Inquiries for more information.) However, as mentioned above, those hard inquiries which do have the potential to negatively impact your credit scores are not going to lower those scores a specific number of points per inquiry that occurs.
Instead, imagine a set of 5 buckets lined up side by side. Each bucket bears a sign which represents the number of inquiries which appear on a consumer's credit report over a period of the past 12 months.
- Bucket #1 = 0 Inquiries
- Bucket #2 = 1-2 Inquiries
- Bucket #3 = 3-4 Inquiries
- Bucket #4 = 5-6 Inquiries
- Bucket #5 = More than 6 Inquiries
*NOTE: These are hypothetical categories for demonstration purposes only.
Since inquiries are the primary factor which accounts for 10% of your FICO credit scores and the range of FICO scores is 300 - 850 (550 total available points) then there could be the potential for a consumer to earn up to 55 points for her credit scores in the inquiry category. Here's a hypothetical look at how credit score points might be awarded within the inquiry category of a consumer's credit report.
- Bucket #1 = 0 Inquiries = 55 points
- Bucket #2 = 1-2 Inquiries = 45 points
- Bucket #3 = 3-4 Inquiries = 35 points
- Bucket #4 = 5-6 Inquiries = 20 points
- Bucket #5 = More than 6 Inquiries = 10 points
*NOTE: These are hypothetical categories and points for demonstration purposes only.
While the points listed above are not an exact representation of how many points a consumer's credit score would receive based upon her number of inquiries, the concept is an accurate representation of how credit scores are calculated within a category. In the example above if Jane Doe had a credit report with 3 inquiries then she would receive 35 points (of the 55 available points within the category) to be added to her overall credit score. However, if Jane Doe had no additional credit inquiries and the 3 inquiries became over 12 months old then she would move to the "0 inquiry" bucket and would receive 55 points instead of the 35 points she had received previously. In the case of this example Jane's credit score would increase by 15 points once the 3 previous inquiries aged out of credit score calculation range and she moved to the "0 inquiry" bucket.
When it comes to inquiries just remember that the fewer hard inquiries the better it is for your credit scores. (Soft inquiries which typically occur when you check your own credit are fine. They never lower your scores.) Additionally, as you can see from the "buckets" example above, no single inquiry is worth a particular number of points. Now that you understand that individual credit inquiries are not worth a particular number of points, congratulations! You now understand more about your credit scores than probably 99% of the population.
Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.