Credit Reports

It can be confusing when one financial article tells you that your credit score will be affected by too many credit inquiries and then another will tell you that it will not affect your credit score. Which one is right? How to know who to believe? Fill out the application or don’t fill out the application? What is a responsible borrower to do? First off, both are right! It doesn’t make it easier knowing this, but with a little more information you will be able to evaluate your individual situation to make a wise and responsible decision regarding applying for credit or a loan.

There are only two options regarding credit inquiries and credit:

1. Applying for credit or a loan WILL affect credit
2. Applying for credit or a loan will NOT affect credit

The reasons applying for credit or a loan WILL affect credit is that it is believed that if someone is applying for too much credit that they are not being financially responsible. It could also set the groundwork for a person to get into financial trouble if they overextend themselves with loan payments and high credit card balances. When the credit score is being evaluated, the formula is designed to reasonably predict if a person will be able to maintain financial health for the next two years. Credit inquiries that are negative to credit scores and look bad on a credit report:

* Varied types of inquires (house loan, store credit card, Visa, AND car loan) within 30 days
* Inquires spread out over several months
* Excessive number of inquiries

Some places offer incentives to apply for a credit card or loan. The free gift will not be worth applying for a credit card or loan that you don’t need when it dings your credit rating.

The reasons applying for credit or a loan will NOT affect credit is that they don’t want to penalize people for shopping around to find the best deal. If you are an aggressive rate shopper, that is a sign of a responsible borrower and the credit score formula is designed so that an applicant will not be penalized for it. Credit inquiries that do not have a negative affect on credit reports:

* Single type of inquiry (house loan, Visa, rental application, OR car loan) within 30 days (one or two outside the window are overlooked because it is assumed that is part of original set of inquiries on a single type of inquiry).
* Inquires confined to a particular time frame
* Few inquires over the previous 12 months

Don’t be afraid to shop around, but don’t apply excessively just to receive a free gift at the cost of a high credit score.