A foolproof way to count inquiries affecting your score

This post originally appeared March 16, 2017 on CreditCards.com as “‘Q&A: With multiple credit checks, timing is key

By Barry Paperno

Dear Speaking of Credit,
I’m slowly shopping for a new car, and a new car loan. Two months ago, I almost pulled the trigger on a deal. But after the loan paperwork was drawn up, I didn’t like the credit terms, and ended up backing out. I know my credit took a slight hit from that hard inquiry. If I go car shopping again this weekend and get another credit check, will I take another credit hit? – Sam

Dear Sam,
Shopping for the best credit terms is a must for any savvy consumer. It is also important to be aware that multiple inquiries from different lenders to peek into your credit past might affect your credit score.

The impact of these inquiries tends to be quite minimal when compared to the effects of late payments or high card balances. But too many inquiries on your credit report can lead to denial of credit or a higher interest rate if your score dips below a lender’s approval threshold as a result. That’s why it’s important to understand how the credit scoring formula determines which inquiries might affect your score before you go “rate shopping.”

With that goal in mind, let’s look at how the FICO scoring system singles out the multiple “hard” auto loan inquiries from the “soft” ones – the ones to ignore­. (It is also good to know the process we’ll be discussing applies to multiple hard inquiries from mortgage and student-loan rate shopping as well.) FICO is the credit score lenders use most often.

You already appear to know something about the difference between hard and soft inquiries, and that the scores treat auto loan inquiries differently than those caused by credit card and other types of credit applications. First, let’s make sure we’re speaking the same language when referring to these two major types of inquiries:

  • Hard inquiries can negatively impact scores. They typically arise from credit applications, acceptance of credit offers and credit-limit increase requests.
  • Soft inquiries never affect scores. They come from credit checks that don’t come from credit applications. Examples include preapproved card offers, insurance-premium renewals and consumer requests for their own credit reports.

How FICO bundles inquiries
Let’s focus now on how FICO credit scores essentially treat multiple hard inquiries as one. There are two main parts of the puzzle to consider:

  • 30-day buffer: A mortgage, auto or student loan inquiry is ignored entirely by the scoring formula for 30 days following the credit pull.
  • 45-day dedup (pronounced “dee-doop,” short for “deduplication”): Any number of these inquiries can have occurred during any rolling 45-consecutive-day period within the past year, and yet the score will consider only one.

Example: 5 car loan credit inquiries
The following exercise will demonstrate how the scoring formula knows just the right number of inquiries to include in a credit score being calculated today. From it you should be able to apply the process to your own credit report, determining which inquiries are likely to have some impact, and which ones won’t.

In this scenario, we will assume you have recently inquired five times about a car loan.

Inquiring auto loan lenders within the past year Number of days since inquiry Will this inquiry count in today’s score?
Acme Auto Loans 10 No
Western Car Financing 40 No
US Lending Co. 50 Yes
Best Car Lenders 100 No
First Automobile Funding 115 Yes

Let’s look in more detail at each inquiry.

Acme Auto Loans: This inquiry falls within the 30-day buffer period, so it will not affect today’s score.

Western Car Financing: To determine whether this inquiry will go into today’s score, we’ll measure the time span between this inquiry and the prior one, made by US Lending Co. With an interval of only 10 days between both (50 days – 40 days = 10 days), the 45-day dedup rule requires that the Western Car Financing inquiry be excluded.

US Lending Co.: With an interval of more than 45 days between this inquiry and the previous one, made by Best Car Lenders (100 days – 50 days = 50 days), we now know that the US Lending Co. inquiry will be counted.

Best Car Lenders: With an interval of only 15 days between this inquiry and the previous one, made by First Automobile Funding, (115 days – 100 days = 15 days), it becomes clear that it won’t affect any score being calculated today.

First Automobile Funding: As the oldest inquiry posted on this credit report within the past 12 months, with no prior pulls, it will automatically be included in today’s score.

This exercise illustrates how only two out of the five hard inquiries on today’s credit report will be included in today’s score, as all but two of the inquiries occurred within a focused 45-consecutive-day period. So, Sam, when shopping for an auto, mortgage or student loan, you can take steps to ensure that only one hard inquiry will impact your score: Make sure that all credit checks take place within an interval of 45 days. It is not a very high hurdle.

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