The Federal Fair Credit Reporting Act defines a credit inquiry as an item on a credit report that shows a business with a "permissible purpose" has previously requested a copy of the report. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit and is not based on inquires that are not initiated by you, inquiries by employers, or your own request to see your credit profile.
Note: Not all inquiries count toward your credit score.
Voluntary inquiries will appear on your credit report when you authorize someone to ask credit reporting agencies to share your credit profile.
If you look at your credit report, you will see a log of inquires that will usually remain on your credit report for up to two years, then it must be removed as required by the law. Only those inquiries made over the last twelve months can be used in calculating your FICO score and when you request your own report, it is not counted as an inquiry, neither does it count when a prospective employer pulls your credit report to make a hiring decision or when a current creditor looks at your credit report to update information.
On the credit report, notations are made when someone, an individual or a business, requests a copy of your credit report. That company or individual will be listed on your report as part of your profile.
Creditors usually frown on a reports that have a lot of inquires on them, and some will deny an applicant credit based on the number of inquiries on the report, unless so many inquires can be explained and the applicant can take the necessary steps to have the inquires removed in a timely manner.
It is a good practice to keep inquiries down to a minimum, and this is especially true when buying a car. If you let them, each dealership will run a credit check, thereby giving the impression that you are applying for credit and being turned down. Before you go car shopping, go on line and get your free credit report so you can get an idea of what your FICO score looks like before heading out to find a car.
The more inquires you have on your credit report, the more desperate you look and creditors don't like the look of desperation. Your existing creditors will often run a review of your credit history but that type of inquiry should not hurt you. If you request a copy of your credit report, it will not appear on the copy of the one that goes to a particular creditor.
Some inquiries may viewed as negative and some of them may not be. It is considered a negative inquiry when different lenders run credit checks on you in a short period of time. When creditors look at your credit and see numerous inquires, especially if it appears that you have been turned down for credit, or if there has been a long time lapse, maybe two to three months, between inquiries by the same lender, it throws up a red flag to other creditors.
Numerous inquires on your credit report will affect your overall FICO score by lowering it, but usually not significantly. Each inquiry will lower your FICO score by an estimated five points.If someone has a judgment against you, and they run an inquiry on your credit history, it is considered a negative inquiry, along with inquiries by the Internal Revenue Service (IRS).
Your credit report will list both both voluntary inquiries, spurred by your own requests for credit, and involuntary inquiries, such as when lenders order your credit report to offer you a pre-approved credit card.
Studies show that people with six or more inquires on their credit report in a short period of time are more likely to file bankruptcy than those who do not have any inquiries. Most banks and other lenders look at this as a warning sign not to giving credit to certain individuals.
Zero inquires is not necessarily good for individual credit reports, either. A good mix of automobile and home loans, along with two or three credit cards is looked on favorably by banks, mortgage companies, and other creditors, especially if there are no late payments.