How do inquiries affect me?
How do inquiries affect the way banks look at you for a loan decision?
Let’s first clear up the difference between hard inquiries and soft inquiries.
Okay… really quick….Hard inquiries are where a potential lender or institution checks your credit for any number of reasons. A Macy’s credit card at the mall, qualifying for an apartment, opening a checking account at a bank the list goes on and on, right?
So, be careful when you go to places and they ask you for your social security number as they may run an hard inquiry without really tell you they’re going to. An example that we often see clients get TONS of inquiries when they’re car shopping and the dealership doesn’t tell the client they’re running their credit EVERYWHERE. Usually they’re main agenda is just getting you approved so they can sell you a car, not worrying how many inquiries they’re going to give you. No wonder used car salesman get such a bad rep!
A soft inquiry is when you check your credit yourself at a credit monitoring site, institutions that already have an account with you, or promotional campaigns such as credit card companies giving you offers. Again think twice giving out your Social Security Number and ask if they are running a hard inquiry if someone is asking for it. Check to see if they would allow you to send them a credit report that you currently have from a credit monitoring site such as creditchecktotal.com to save from you getting a hard pull.
If banks and lenders see many inquiries on your credit, how does that look to them?
Well, every hard inquiry is an indication that you are going to a business having your credit checked for some particular reason.
So…if you have multiple inquiries and if you think about it from the bank’s point of view, they see you as risky BECAUSE each of those inquiries can possibly mean that you acquired a new loan, credit card, mortgage or new car etc. which is all debt,right?
Even if your credit is GREAT, well above 700, the banks see you as a risk because they think you might have new debt that is not showing on your credit report because of the new inquiries.
If the banks thinks you may have new debt not showing up yet on your credit report, they can and probably will DENY the new request for a loan or a credit card. Banks do this because it’s risky for the bank to extend you credit because of your recent inquires. The probability of you getting new debt is high because of the recent inquiries that you acquired. Banks try to make safe calculated loans for their institution; it’s how they stay in business. If banks were not careful with this, they can go out of business since they would be giving out loans to customers who can’t pay them back. Each inquiry can possibly mean that you acquired new debt/loans.
Remember in 2008, this is basically what happened in the real estate industry. Banks were lending too much and their credit guidelines were too lenient. People were not able to pay their house payments anymore because banks made poor judgment calls by giving out too many loans to people who weren’t creditworthy.
Try to keep your inquiries of course to a minimum. Usually lenders like to see less than 2-3 inquiries in the past 6 months, specifically the last 2 months is the most important. Banks tend to look back at the last 6 months on your credit report for decisions whether to approve your loan or not. Usually 6 inquiries per credit bureau is pushing too many inquiries and you won’t qualify for any funding EVEN if you do have “great credit.” The only way you could get approved for anything would be if the inquiries removed or they drop off in time.
Maybe you’ll think twice before you give your social security number to the evil car salesman!
Hope this tip helps and if you ever have questions about anything on your credit report before you try to get a loan, you’re more than welcome to call us.