How shopping for a loan or a better credit card rate can damage your credit report score
When you apply for a loan or a credit card the prospective lender requests a copy of your credit report from one or all of the major credit reporting bureaus (Equifax, Experian, TransUnion) this request is called a hard inquiry. The credit report score computer looks at the number of hard inquiries on your credit report, the dates they were made, and by whom these inquiries were made.
Some statistician has determined that people whose credit reports show a large number of hard inquires in a short period of time are more likely to file for bankruptcy or default on their financial obligations. As such, the credit report score computer whacks your credit report score by 5 or 10 points for every hard inquiry. Not many points – unless the hit to your credit report score drops you into a higher risk category. The credit agencies do not disclose how many is too many and how short is too short.
Fair Isaac tells us that its credit scoring algorithm can distinguish between a prospective creditor requesting your credit report with your permission (a hard inquiry) and a request made by a marketing company for a credit card solicitation, or the request you make when you get your annual credit report or your free credit report.
Fair Isaac also tells us that its algorithm can determine when you make several inquiries shopping for the best rate by the fact that only one additional account related to the inquiries is opened. Fair Isaac does not tell us the result if you decided to not go forward with the loan after having made the inquiries. We must play this game without the rule book.
How you can play the creditscoring game without a rule book..
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