Too Many Inquiries?

[Jordan]

I just got my 3 in 1 credit report, and they add to it an explanation part that lists the negative items that affect your credit score. One of the negative items on my report reads “Too many recent inquiries in the last 12 months”.

I only have a few inquiries on my report, so I don’t understand what they mean by that and how this impacts my FICO score.

Thanks

[Ron]

It’s a subjective term

When the score explanation indicates that you have “too many inquiries,” it means that compared to consumers with similar credit profiles as yours, you have more inquiries (hard inquiries) than you should have, and it’s lowering your FICO score.

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

• If you have less inquiries than this maximum – no impact on your FICO score.
• If you have more inquiries than this maximum – You FICO score will take a hit

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 fewer inquiries. In addition, the explanation will indicate that you have too many inquiries.

Why is that so? Because research shows that opening several credit accounts (or looking into opening many more accounts – which is what inquiries are) in a short period of time does represent greater risk – especially for people who do not have a long established credit history.

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

BTW, FICO score do a good job of distinguishing between a search for many new credit accounts and rate shopping for just one new account.

[Author]

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