Number of Inquiries
Tenacious
5/16/2012 8:56:50 AM
What does number of inquiries mean and why does that impact ones score?
Every time you apply for credit, the lender pulls your credit report. If there are a lot of inquiries, it appears like you have applied for a lot of new credit - and that maybe you are in financial trouble. That reduces your credit score.
Yeah, I hate this part of credit reporting. For example I have re-financed twice in the last year, three banks have pulled my credit for refinancing, and I get dinged. Kind of annoying. It's like they are making assumptions about something they know nothing about.
Re: Number of Inquiries
tokyogai
5/16/2012 9:24:44 AM
I think the whole system is stupid. If you don't borrow, your score is low. If you have cash and use it, you get a bad score. If you are smart and refinance at lower rates, your score goes down. The criteria may be right for a large number of users, but not for all. I would hope that at least some banks would be smarter than to look at scores alone.
Re: Number of Inquiries
Phoenix
5/16/2012 9:38:12 AM
That's interesting to know. I wasn't aware that the number of inquiries would make such a difference. So if you are interested in finding out the best options available for you and go to several banks to get the best rate they could give in order to compare the rates your would end up with a lower rating? (Since every bank will then be making inquiries about your rating)
Re: Number of Inquiries
Tenacious
5/16/2012 9:53:40 AM
What about if you pull your own credit score? Does that have an impact on your credit score? Does it count as an inquiry if you get your own report?
"I think the whole system is stupid. If you don't borrow, your score is low. If you have cash and use it, you get a bad score."
LOL. Good points tokyogai. It's more like a system for the banks to score "What is the likelihood we can make good money off this person?"
Re: Number of Inquiries
Tenacious
5/16/2012 9:56:15 AM
The most attractive borrower to a bank would be someone with a decent credit score. Too bad of a score would indicate that they may not pay it back. Too good of a score may indicate that they will pay it back early, or on time with no extra fees. A decent borrower would borrow money that they can pay back, but they may miss a payment here and there, and they will hold the loan for the entire length of the term. That would maximize the banks profit from the loan. At least, that is how I think about it. Can anyone verify if anything that I just said is correct, or did I just make up a bunch of stuff?
Also, as I've chronicled on this board many times, I don't exactly know what the banks want.
Of course in the mortgage bubble 2003-2007 they would lend any amount of money to anybody with a pulse. Now they don't want to lend anybody any money.
Shouldn't it be like the stock market where you buy low and sell high? You would think the people who still have jobs and decent credit would be great bets right now because if they still have money now, well then, they're clearly good at surviving crisis.
Well Tenacious, you're right. To an extent, Here's a primer:
A credit report is a historical record of your bill paying history. A credit score, in contrast, simply reflects a given moment of time. Think of it like a blood pressure reading. The results can vary from day to day, depending on what is happening in your life. So a 10-point increase or decrease isn't necessarily worrisome. It is just something to watch.
Your score can change for many reasons. It generally increases when you pay off debt, make all your payments on time (there is no difference in making the minimum payment or payment in full), and keep your credit cards well under the maximum limits. Your score canfall if you make a payment late or not at all, or increase your debt.
It may even fall slightly if you close a credit card account. The score weighs the percentage of debt you owe against your total available credit. If you owe $10,000 on five cards–and those five cards have a combined credit limits of $30,000–then you have a total debt ratio of about 33.3 percent.
If you cancel two of those cards, you reduce your total available credit to $20,000. But you still owe $10,000. You have increased your debt ratio to 50 percent, and probably lowered your score, at least temporarily.
The last time I spoke to my buddy at FICO, he told me your payment history affects about 35 percent of your credit score. How much you owe affects about 30 percent, the length of your credit history about 15 percent and inquiries for new credit about 10 percent.
Best thing to remember: You can raise your score by paying bills on time, keeping balances low on credit cards and paying off debt, at least as quickly as the terms of your loan or credit card agreement require.
You won't be penalized for paying quickly, but you won't get brownie points either.
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