Credit Scores and Inquiriesby Steve Cypher on Friday, August 10th, 2012
It’s especially critical if your credit is less than perfect that you understand the impact that credit inquiries will have on your credit scores.
We understand this here at Auto Credit Express where, for the last twenty years, we’ve been helping car buyers with poor credit locate the kind of new car dealers that understand this situation and can arrange for approved auto loans.
In some cases buyers first try to do this on their own and, if they’re not careful, they run the risk of lowering their FICO scores even further.
Credit inquiries and FICO scores
A recent blog post from the folks at FICO discussed what happens to scores when consumers apply for credit.
According to the article, auto loan inquiries “that occur 30 days prior to scoring have no effect at all on the FICO score.” Outside this 30-day period, any inquiries that happen within any 45-day period are treated as just one inquiry (provided they are all for an auto loan). The same thing will happen if you drive from dealer to dealer looking for a loan approval.
The advice from FICO: do your shopping in a “reasonably short period.” It also helps if you “do your homework.” If you think you have bad credit we believe this “homework” should also include obtaining copies of all three of your credit reports and paying for at least one credit score.
Inquiries that do not affect credit scores
According to FICO, the only inquires that affect your FICO score are “those that result from when a consumer actively applies for new credit.” FICO does not consider:
• Consumer disclosure inquiries — consumer requests for a copy of their individual credit report
• Promotional inquiries —lender requests to review for pre-approved credit offers.
• Account review inquiries — lender requests to review existing accounts they hold
• Employment inquiries — requests from potential employers
• Insurance inquiries — requests from insurance companies
Credit score impact
The article notes that a single inquiry will typically impact a FICO score by less than five points, although this varies and the impact is usually greater if a consumer has few accounts or a short credit history.
In addition, since an inquiry is only one part of the “search for new credit” category and the entire category only accounts for 10 percent of the score, inquiries account for less than 10 percent of your credit score.
Why inquiries affect credit scores
If inquiries account for less than 10 percent of your credit score, why should they affect it at all?
According to FICO, consumers who are looking for credit are riskier than those who aren’t. In fact, people with six or more inquiries showing up on their credit reports are eight times more likely to declare bankruptcy as compared to consumers with no inquiries.
But with that being said, inquiries still play a minor role when judging risk – overshadowed by bill paying habits and the overall debt of the consumer.
As we see it
Especially if you have credit problems, it’s necessary that you understand how and why credit inquiries affect your credit scores. It’s also important to realize that your credit scores can be impacted by how you search for a dealer – which is where we come in.
Auto Credit Express specializes in helping people with auto credit difficulties find a dealer that can give them their best chance at approved auto loans.
So if you’re serious about getting your car credit on track, you can start now by filling out our online auto loans application.