Credit Report Inquiries – How Many Are Too Many?

I get this question in the mail all the time. People are concerned about the effect too many inquiries may have on their Fico score, and for a good reason. If you have too many hard inquiries in a short period of time, your score is bound to take a hit.

So naturally, people want to know how many inquiries are considered acceptable, and exactly where is the cutback point that if you go over – your score is impacted?

The answer is that such a threshold does exist. Having a small number of hard inquiries will only lower your credit score by a few points. However, if you go over this threshold and have too many credit report inquiries in any given 12 months period, your score will take a big hit, un-proportionally to the number of inquiries.

Why is that so?
Because researches have shown that opening several credit accounts (or looking into opening many more accounts, which is what generates hard inquiries on your report) in a short period of time does represent greater risk – especially for people who do not have a long established credit history.

O.K., so exactly how many are “Too Many”
The only problem is that there’s no exact number. It varies between people and their financial status.

What Fico score formula does is to profile people. For consumers with similar credit profile to yours, Fico formula has came up with a MAXIMUM number of hard inquiries that is considered tolerable:

• If you have less hard inquiries on your file than this number – you may expect minimal impact to your Fico score (a few points).
• Having a larger amount of hard inquiries on your file than the maximum considered tolerable will trigger a serious hit to your fico score.

Once more, it’s important to understand that the actual number varies according to the different credit profiles people have. When you exceed this maximum number, your score is impacted and will be lower compared to what you could have received with just a few less inquiries. In addition, the explanation part of your credit report will include the following sentence “Too many recent inquiries in the last 12 months” to indicate that you have exceeded the maximum number of hard inquiries considered tolerable.

As people change their credit habits and use more credit in general as they do these days – this Maximum number of credit report inquiries changes as well to reflect this reality.

So how can I do rate shopping without hurting my score?
Fortunately, the people at Fair Isaac recognize the importance of rate shopping, so they have twicked the Fico score formula to allow rate shopping without it impacting your score.

To be exact, they have created the following exceptions:

• Fico score ignores mortgage, auto and student loan inquiries made in the 30 days prior to scoring. This means that no matter how many creditors you’ve authorized to access your credit information – it won’t affect your credit score for 30 days.
• After the 30 days are gone – multiple hard inquiries made within a period of 14 days (in the old version of FICO) or 45 days (in the newer version) are considered as a single hard inquiry.