The fact is that every time a vendor, bank, or merchant requests to see your credit report, it registers as an inquiry, an event visible on that report. But will these inquiries actually lower your FICO score?
The short answer is: it could, but that’s largely based on two factors:
1) What kind of credit trade line you’re applying for, and
2) The timing of those inquiries.
Remember that the whole basis of credit reporting and credit reports is to give lenders an accurate metric to measure the risk of granting you a loan. So when a consumer registers multiple inquiries (and the wrong kind) it sets off a red flag to risk for lenders. Why? They’re worried about the consumer applying for credit or loans out of financial desperation and becoming overwhelmed with debt. So the larger the number of credit applications and inquiries the greater the risk, and therefore their score could drop.
In fact, people with six inquiries or more on their credit reports are statistically 800% more likely to file for bankruptcy!
Now here is the fine print – not all credit inquiries are treated equally. Some are a logical function of consumers shopping for the best rates or terms, especially with big-ticket items like auto loans, mortgages, and student loans.
The credit bureaus expect consumers to submit several applications (and have their credit report pulled) in order to get quotes from multiple sources when it comes to those loans, so those inquiries are less likely to adversely affect a credit score, if at all.
However other types of loans are seen as clear indicators of risky consumer behavior: credit card applications, store credit cards, payday loans and other inquiries that mark irresponsible financial behaviors.
Typically, your FICO score can go down only about 5 points per inquiry if you have your score pulled too often by the wrong vendors.
But here’s the good news: the second component to this equation is the timing of credit inquiries. The bureaus usually just count this group or batch of inquiries as one if they’re within a 30-day period. So the lesson here is that you absolutely should shop around for the best rates on big, important loans without worrying about multiple inquiries on your credit report, but try to contain them to within a 30-day period, but avoid multiple credit pulls on other kinds of debt that signal risk.