Consumers are rightly concerned with earning and maintaining solid credit scores, because a strong score means more competitive terms from mainstream lenders.
It’s no secret that missing payments and maxing out your credit cards can have a profound negative impact on your scores for many years. Along with paying your bills on time and using credit cards wisely, applying for credit only when you really need it is another way to protect your credit scores.
Applying for credit will result in a “credit inquiry” being added to your credit report. An inquiry is simply a record of your report being accessed, and it includes the date and the name of the company that pulled your report.
Credit “experts” often list credit inquiries among the top influences on your credit scores, right up there in importance with avoiding delinquencies and lowering credit card debt. The reality is that credit inquiries have minimal impact on your scores.
In the VantageScore credit model, inquires are worth a measly 5% of your score points. That makes them less influential than many other factors on your credit report. From a score management perspective, you shouldn’t spend much time thinking about them.
One reason their influence is so small is the way scoring models treat them. For example, the VantageScore credit scoring model treats multiple inquiries made in connection with many types of transactions, including mortgages, auto loans, and utility account originations, as single events, as long as they occur withing a rolling 14-day window. The assumption is that consumers who have multiple inquiries in a short period of time are shopping around for the best interest rates and terms, rather than attempting to open several accounts. This inquiry logic is extremely consumer-friendly and allows consumers to focus on getting the best rates rather than their credit scores.
All of this means that if you’re ever denied credit, it’s highly unlikely it will be due to having too many credit inquiries. They’re simply not influential enough to have that kind of impact on your scores. You can, however, be denied credit for a number of factors that may include credit inquiries.
The consumer who has strong scores doesn’t have to worry about inquiries because even with their influence, their scores are likely still high enough to qualify for a great deal. The consumer, however, who already has marginal credit scores should be the one who is more concerned about inquiries. For that consumer every point counts and can be the difference between approval and denial or several percentage points on the interest rate.