“Hard” vs. “Soft” Inquiries

There are two types of credit inquiries: “hard” and “soft”. Only hard inquiries hurt your credit score. Hard inquiries result from potential lenders pulling your credit report when you apply for credit with them. The following are all examples of soft inquiries: you pulling your own credit report; a potential employer checking your credit; and credit card companies inquiring on your report to see if you are eligible for promotional offers (if you want to prevent them from doing that, call 1-888-8-OPTOUT). Creditors that you have a current relationship with may also monitor your credit by pulling your report from time to time; this would also be a soft inquiry.

How Hard Inquiries Affect Your Credit Score

It has been estimated that each hard inquiry lowers your credit score by 5 points. Most inquiries will stay on your credit report for 1 to 2 years.

The exception is if you’re shopping around for a mortgage or auto loan. In that case, any hard inquiries for the same type of credit occurring within 14 days of each other will only count as one inquiry as far as your credit score is concerned. But remember, this only applies to home and auto loans, not to credit card or any other type of inquiries!

Unauthorized Inquiries

The Fair Credit Reporting Act (FCRA) requires that whoever pulls your credit report does so only with permissible purpose. So if you see any inquiries on your report that you don’t recall authorizing, you should dispute them.

The best way to dispute an inquiry is to send a letter to the creditor in question stating that you do not recall authorizing them to pull your credit report. Ask them to either provide you with proof that they had permissible purpose to inquire on your report, or delete the inquiry. Send the letter certified mail with return receipt requested, and keep copies for your records.

In the event that the creditor doesn’t respond to your dispute or fails to delete the inquiry without providing proof of permissible purpose, you will need to dispute the listing with the credit bureau and send them a copy of the letter you sent to the creditor.

If you have any questions about inquiries on your credit report, please feel free to comment.

Post from: Credit Repair and Debt Solutions

Inquiries On Your Credit Report

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3. Understanding Your Credit Score

What is a credit score?

Your credit score is a three-digit number that is calculated based upon your credit history. Its purpose is to help potential lenders determine the level of risk associated with extending credit to you. The most widely used credit scoring model is known as the FICO, named after its inventor, the Fair Isaac Corporation. A FICO score can range from 300 to 850, with a higher score indicating a more positive credit history.

When a lender requests your credit score from one of the three major credit bureaus (Equifax, Experian, and Transunion), it will usually be the FICO score. Each credit bureau calls the FICO score by a different name: Equifax calls it a Beacon score; Experian calls it the Fair Isaac Risk Model; and Transunion refers to it as the Empirica score.

How do you get your credit scores?

Unfortunately, Experian has ceased to allow consumers access to their Experian FICO scores. They are now only providing consumers with their VantageScores. Your VantageScore is based on a credit scoring model that was invented by the credit bureaus themselves. It is completely different from the FICO score. At the present time very few, if any, lenders base credit decisions on VantageScores. Experian still provides FICO scores to lenders; they just no longer provide them to consumers. If you apply for credit with a lender who pulls your Experian credit report and score, they should give you a copy of the report and score if you request it.

You may purchase your real Equifax FICO score from the Equifax website, however the Transunion website does not provide true FICO scores. It provides what is commonly referred to as a “FAKO” score, which means that it is an estimate of your FICO score. You can get both your true Equifax and Transunion FICO scores from the MyFico website.

Why does each credit bureau show a different credit score for you?

Not all creditors report information to all three credit bureaus; some report to only one or two. If you compare your three credit reports (from Equifax, Experian, and Transunion), you will probably find that not every loan or credit card you’ve ever had shows up on all three reports. Also, the three bureaus don’t always receive updated information to add to your credit file at exactly the same time, so sometimes your scores don’t match because your credit reports are not perfectly in sync.

How is your credit score calculated?

The exact formula used in the FICO scoring model is actually a secret! Only the Fair Isaac Company knows with absolute certainty how an individual’s score is determined. Note that I say an individual’s score. A FICO score is calculated based on five different categories, but these categories are weighted differently for different people, depending on their individual credit history. But the breakdown below of the different factors considered and their influence on the FICO score applies to the general population. And while it may not be the exact formula that would be used to calculate your score, it does give you an idea of what you should concentrate on if you want to improve your score.

-Your payment history counts for 35% of your score. This includes on-time payments, late payments, collection items, bankruptcy, judgments, etc. More recent items are weighed more heavily than less recent ones.

-The amounts owed make up 30% of the FICO score. And it’s not just a question of how much you owe; how much do you owe in proportion to how much credit is available? Although this somewhat applies to installment loans too, it is a much more important factor when it comes to revolving accounts (i.e., credit cards). Credit experts generally agree that in order to score well in this area, you should not use more than 30% of the available balance on a credit card.

-Length of credit history counts for 15% of your score. Open accounts that have been established for several years benefit your score. So don’t close those old credit card accounts, even if you don’t use them often! (If you haven’t been using credit for very long yet, don’t worry–this factor will not prevent you from having a good score!)

-Another 10% of your FICO score is determined by any new credit you may have. What does FICO consider “new”? They don’t really tell us, but my guess would be anything less than one year old. Having too many new accounts, or too many inquiries less than a year old, will probably adversely affect your score in this area. This is why you should apply for new credit sparingly.

-The types of credit in use makes up the remaining 10% of your score. Apparently there is an ideal ‘mix’ of major credit card accounts, retail credit accounts, mortgage, installment loans, etc. that FICO likes to see, but no one knows exactly what that mix is. Although you should not worry if you don’t have one of each of those types of accounts, you should at least try to establish both revolving and installment accounts in order to create a well-balanced credit history.

I hope this article helped you to better understand your credit score; if you have any questions please feel free to post a comment!

Post from: Credit Repair and Debt Solutions

Understanding Your Credit Score

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