One of the most common assumptions about credit applications is the thought that credit inquiries will lower your rating. While this assumption has some truth, the overall impact is often over-stated.
You may not have known that recording credit inquiries not only helps the lender, it also helps you.
The truth is, only multiple credit inquiries over a short period of time will seriously affect your score. In most cases, a single credit application will have little to no effect.
Why Credit Inquiries Affect Your Credit Score
What is a “Credit Inquiry”?
First of all, let’s establish what a “credit inquiry” actually is. When you give a lender permission to pull your credit score, a record is created. For instance, if you submit a credit application, the lender will look at your credit information. This action will then be recorded. So essentially, a credit inquiry is a simple record of someone looking at your credit.
Why can credit inquiries effect your score?
Opening numerous lines of credit and taking out multiple loans over a short period of time can create a significant risk for default. For this reason, when rapid credit inquiries are made, it creates a red flag for lenders.
Lenders are really on the lookout for rapid increases in credit inquiries, not a few applications throughout the year. So the most important thing to remember is that a couple of inquiries will rarely have an effect on your credit score.
Recording credit inquiries also benefits you
It should also be noted that recording credit inquiries is not just for the lenders. It also helps individuals monitor their credit and see if any applications were made without their knowledge or permission. If you see that a wrongful credit inquiry was made you can take the necessary steps to fix the problem. Without the credit inquiry record, a potential issue may have gone unnoticed.
The bottom line is that if you only fill out a few credit applications, your score will be just fine. While every situation is different, the chances of a single credit application significantly affecting your credit score is slim to none.
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Information You Need Before You Buy
After years of delays, the credit industry finally agreed to give consumers access to their personal "credit scores." This is important, because lenders use credit scores to determine who to give credit to and at what rates. Knowing your credit score can be empowering,If it's low you can take steps to improve your credit worthiness and if it's high you may be able to use it as leverage when shopping for your next car loan.
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