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Credit Repair And Inquiries - What You Don't Know Can Hurt You

Aug 17, 2007
So, applying for a loan can actually hurt my credit score?

Actually, while this can be true, it is not as bad as people make it seem. So many people are worried about credit inquiries that they are too afraid to shop around for a loan when making a decision as important as choosing a mortgage company or a finance company for a new car.

The way this sounds when your friends and relatives are giving you all the advice they know is that every time you apply for a loan someone deducts 100 points from your credit score.

It is true that credit inquiries can reflect negatively. It is also true that they can lower your score, but you shouldn't see major decreases in your credit score from a single inquiry.

Applying for too much credit in a short amount of time can make you appear desperate for money, which throws up a huge red flag to creditors. It raises your risk for default and bankruptcy. This is why they track inquiries in the first place.

Nobody can really say what the magic number is for how many inquiries are acceptable before your score is significantly impacted, but applying for a needed credit card, cell phone, etc. is not going to make a considerable impact unless you are applying for credit cards all over town.

The best way to avoid too many inquiries is to be careful to only allow your credit to be run by someone you are serious about getting a loan through. Try to do a little research on credit cards before applying so that you can feel confident about doing business with the particular company you allow to run your credit.

So, now you're probably thinking, "How can I shop around and make sure I'm getting the best deal on my mortgage without looking like I'm trying to get loans from 40 different banks??"

In times past, you couldn't. However, after receiving countless complaints from consumers, the scoring model has been slightly changed. The exceptions are only in effect for car loans and home loans because these are considered major purchases for which consumers want to be certain they are getting the best loan.

Here are the exceptions:
*An inquiry buffer is in place and all mortgage and auto inquiries within 30 days from scoring are ignored.
*All mortgage and auto inquiries in a 14 day period count as 1 inquiry.

The only catch here is that the mortgage and auto companies have to report the inquiries as mortgages and autos. Since this information is hidden in the databases and not openly listed on the credit report, there is no way to tell if they are reporting properly or not.

Sometimes it is best to be cautious even when applying for a car or a mortgage. This would be if your credit score is very borderline and your lender is helping you with credit clean-up. You could cause yourself some serious problems in this case by adding more credit inquiries.

Since there's no way to tell if the lender is properly reporting their inquiries, I would say it is best to err on the side of caution if you have a low score. It's better to have only 1 loan choice and still purchase your dream home, then to have several choices, but risk your score dropping to a level where you can no longer be approved for that dream home. You can always work raising your score and refinance your loan later.

Since the scoring model has only been changed for mortgages and auto loans, it is important to be very selective about having your credit run for other loans.

Compare general interest rate information among the companies you are interested in before applying. Apply for the ones who seem to have the lowest rates. Then you can feel confident in having only 1 lender run your credit for the financing you need.

However, don't be afraid to apply for credit you need. As I stated earlier, the impact to your score will be minimal as long as you are careful not to apply for every credit card that sends you an ad!

The key is to not appear desperate by showing too many inquiries. But, in the course of a normal existence a person is going to need to apply for some credit from time to time.
About the Author
An excellent free resource for your "http://www.clickcreditrepair.com">credit repair needs is online awaiting to help you. This site is owned and operated by Paul Johnson.
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